26 - Theory and Behavior of Single Object Auctions

Summary

INTRODUCTION

This paper addresses the subject of the relation between the predictions of economic theory and bidder behavior in the Dutch auction, the English auction, the first-price sealed-bid auction, and the second-price sealedbid auction of a single item. The four types of auction market are defined as follows.

1. Dutch: In this auction the offer price starts at an amount believed to be higher than any bidder is willing to pay and is lowered by an auctioneer or a clock device until one of the bidders accepts the last price offer (Cassady, 1967, p. 67). The first and only bid is the sales price in the Dutch auction.

2. English: This is the “ … progressive auction, in which bids are freely made and announced until no purchaser wishes to make any further higher bid” (Vickrey, 1961, p. 14). The last bid is the sales price in the English auction.

3. First-price: This auction corresponds to “ … the usual practice of calling for the tender of bids on the understanding that the highest … bid … will be accepted and executed in accordance with its own terms” (Vickrey, 1961, p. 20). In the first-price auction, the auctioned object is awarded to the highest bidder at a (sales) price equal to his bid.

4. […]