Going, Going, Gone! A Swift Tour of Auction Theory and its Applications

An Erratum to this article is available

An Erratum to this article is available

Abstract

This paper provides a swift tour of auction theory and its applications. Among the questions it considers are: How much do bidders bid in commonly studied single-object auctions? How efficient are these auctions? How much revenue do they generate? Which single-object auction maximizes the seller’s expected revenue? What is the best way to auction incentive contracts? And, how efficient and complex are multi-object auctions?

This is a preview of subscription content, access via your institution.

References

  1. Arrow K.J., Debreu G. (1954), ‘Existence of an Equilibrium for a Competitive Economy’. Econometrica 22, 265–290

    Article  Google Scholar 

  2. Ashenfelter O. (1989), ‘How Auctions Work for Wine and Art’. Journal of Economic Perspectives 3, 23–36

    Google Scholar 

  3. Ashenfelter O., Graddy K.(2002), Art Auctions: A Survey of Empirical Studies, NBER working paper nr. 8997, Cambridge, MA.

  4. Ausubel L.M. (2004), ‘An Efficient Ascending-Bid Auction for Multiple Objects’. American Economic Review 94, 1452–1475

    Article  Google Scholar 

  5. Ausubel L.M., Cramton P. (2002), Demand Reduction and Inefficiency in Multi-Unit Auctions. University of Maryland, mimeo

    Google Scholar 

  6. Ausubel L.M., Cramton P. (2004), ‘Auctioning Many Divisible Goods’. Journal of the European Economic Association 2, 480–493

    Article  Google Scholar 

  7. Ausubel L.M., Cramton P., Milgrom P. (2006), ‘The Clock-Proxy Auction: A Practical Combinatorial Auction Design’. In: Cramton P., Shoham Y., Steinberg R. (eds). Combinatorial Auctions. MIT Press, Cambridge, MA, pp. 115–138

    Google Scholar 

  8. Ausubel, L.M. and P.R. Milgrom (2002), ‘Ascending Auctions with Package Bidding,’ Frontiers of Theoretical Economics, 1(1), Article 1, 1–42.

  9. Baye M.R., Kovenock D., de Vries C.G. (1993), ‘Rigging the Lobbying Process: An Application of the All-Pay Auction’. American Economic Review 83, 289–294

    Google Scholar 

  10. Baye M.R., Kovenock D., de Vries C.G. (1996), ‘The All-Pay Auction with Complete Information’. Economic Theory 8, 291–305

    Google Scholar 

  11. Berg G.J., van den J.C., van Ours, Pradhan M.P. (2001), ‘The Declining Price Anomaly in Dutch Rose Auctions’. American Economic Review 91, 1055–1062

    Article  Google Scholar 

  12. Binmore K., Klemperer P. (2002), ‘The Biggest Auction Ever: the Sale of the British 3G Telecom Licences’. Economic Journal 112, C74–C96

    Article  Google Scholar 

  13. Binmore K., Swierzbinski J. (2000), ‘Treasury Auctions: Uniform or Discriminatory?’. Review of Economic Design 5, 387–410

    Article  Google Scholar 

  14. Bulow J.I., Klemperer P.D. (1999), ‘The Generalized War of Attrition’. American Economic Review 89, 175–189

    Article  Google Scholar 

  15. Bulow J.I., Roberts J. (1989), ‘The Simple Economics of Optimal Auctions’. Journal of Political Economy 97, 1060–1090

    Article  Google Scholar 

  16. Cassady R. (1967), Auctions and Auctioneering. University of California Press, Berkeley/Los Angeles

    Google Scholar 

  17. Che Y.-K., Gale I.L. (1998a), ‘Caps on Political Lobbying’. American Economic Review 88, 643–651

    Google Scholar 

  18. Che Y.-K., Gale I.L. (1998b), ‘Standard Auctions with Financially Constrained Bidders’. Review of Economic Studies 65, 1–21

    Article  Google Scholar 

  19. Clarke E.H. (1971), ‘Multipart Pricing of Public Goods’. Public Choice 11, 17–33

    Article  Google Scholar 

  20. Cramton P. (1998), ‘The Efficiency of the FCC Spectrum Auctions’. Journal of Law and Economics 41, 727–736

    Article  Google Scholar 

  21. Van Damme E. (1999). ‘The Dutch DCS-1800 Auction’. In: Patrone F., García-Jurado I., Tijs S. (eds). Game Practice: Contributions from Applied Game Theory. Kluwer Academic Publishers, Boston, pp. 53–73

    Google Scholar 

  22. Van Damme E. (2002), ‘The European UMTS-Auctions’. European Economic Review 46, 846–869

    Article  Google Scholar 

  23. Das Varma G. (2002), ‘Standard Auctions with Identity Dependent Externalities’. RAND Journal of Economics 33, 689–708

    Article  Google Scholar 

  24. Day R.W., Raghavan S. (2005), Fair Payments for Efficient Allocations in Public Sector Combinatorial Auctions. University of Maryland, mimeo

    Google Scholar 

  25. Demange G., Gale D., Sotomayor M. (1986), ‘Multi-Item Auctions’. Journal of Political Economy 94, 863–872

    Article  Google Scholar 

  26. Demsetz H. (1968), ‘Why Regulate Utilities?’. Journal of Law and Economics 11, 55–66

    Article  Google Scholar 

  27. Dykstra M.J., van der Windt N. (2004). ‘Beauty Contest Design’. In: Janssen M.C.W. (eds). Auctioning Public Assets: Analysis and Alternatives. Cambridge University Press, Cambridge, UK

    Google Scholar 

  28. Engelbrecht-Wiggans R., Kahn C.M. (1998a), ‘Multi-Unit Auctions with Uniform Prices’. Economic Theory 12, 227–258

    Article  Google Scholar 

  29. Engelbrecht-Wiggans R., Kahn C.M. (1998b), ‘Multi-Unit Pay-Your-Bid Auctions with Variable Rewards’. Games and Economic Behavior 23, 25–42

    Article  Google Scholar 

  30. Englmaier, F., P. Guillén, L. Llorente, S. Onderstal and R. Sausgruber (2004), The Chopstick Auction: A Study of the Exposure Problem in Multi-Unit Auctions, FEEM working paper 10.2004, Milan.

  31. Gilbert R., Newbery D. (1982), ‘Preemptive Patenting and the Persistence of Monopoly’. American Economic Review 72, 514–526

    Google Scholar 

  32. Goeree J.K., Offerman T. (2003), ‘Competitive Bidding in Auctions with Private and Common Values’. Economic Journal 113, 598–614

    Article  Google Scholar 

  33. Goeree J.K., Maasland E., Onderstal S., Turner J. (2005), ‘How (Not) to Raise Money’. Journal of Political Economy 113, 897–918

    Article  Google Scholar 

  34. Goeree J.K., Offerman T., Schram A. (2006), ‘Using First-Price Auctions to Sell Heterogeneous Licenses’. International Journal of Industrial Organization 24, 555–581

    Article  Google Scholar 

  35. Grimm V., Riedel F., Wolfstetter E. (2005), ‘Low Price Equilibrium in Multi-Unit Auctions: The GSM Spectrum Auction in Germany’. International Journal of Industrial Organization 21, 1557–1569

    Article  Google Scholar 

  36. Groves T. (1973), ‘Incentives in Teams’. Econometrica 41, 617–631

    Article  Google Scholar 

  37. Haan M., Toolsema-Veldman L. (2005), License Auctions when Winning Bids are Financed through Debt. University of Groningen, mimeo

    Google Scholar 

  38. Harris M., Raviv A. (1981), ‘Allocation Mechanisms and the Design of Auctions’. Econometrica 49, 1477–1499

    Article  Google Scholar 

  39. Harstad R.M. (2000), ‘Dominant Strategy Adoption, Efficiency, and Bidders’ Experience with Pricing Rules’. Experimental Economics 3, 261–280

    Google Scholar 

  40. Hoffman K., Menon D., van den Heever S., Wilson T. (2006), ‘Observations and Near-Direct Implementations of the Ascending Proxy Auction’. In: Cramton P., Shoham Y., Steinberg R. (eds). Combinatorial Auctions. MIT Press, Cambridge, MA, pp. 415–450

    Google Scholar 

  41. Janssen M.C.W. (2006), ‘Auctions as Coordination Devices’. European Economic Review 50, 517–532

    Article  Google Scholar 

  42. Janssen, M.C.W. and V.A. Karamychev (2005), Auctions, Market Prices and the Risk Attitude Effect, Tinbergen Institute discussion paper 2005-025/1.

  43. Janssen, M.C.W. and E. Maasland (2002), ‘Second Opinion Onderzoek naar de Veiling van Telefoonnummers’ (‘Second Opinion Research on the Auction of Telephone Numbers’), consultancy report, SEOR-ECRi, available at www.ecri.nl.

  44. Jehiel, P. and B. Moldovanu (2001), The European UMTS/IMT-2000 License Auctions, CEPR discussion paper 2810.

  45. Jehiel P., Moldovanu B., Stacchetti E. (1999), ‘Multidimensional Mechanism Design for Auctions with Externalities’. Journal of Economic Theory 85, 258–294

    Article  Google Scholar 

  46. Julien B., Kennes J., King I. (2000), ‘Bidding for Labor’. Review of Economic Dynamics 3, 619–649

    Article  Google Scholar 

  47. Kagel J.H. (1995), ‘Auctions: A Survey of Experimental Research’. In: Kagel J.H., Roth A.E. (eds). The Handbook of Experimental Economics. Princeton University Press, Princeton, NJ, pp. 501–585

    Google Scholar 

  48. Kagel J.H., Harstad R.M., Levin D. (1987), ‘Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study’. Econometrica 55, 1275–1304

    Article  Google Scholar 

  49. Kagel J.H., Levin D. (1993), ‘Independent Private Value Auctions: Bidder Behavior in First-, Second- and Third-Price Auctions with Varying Numbers of Bidders’. The Economic Journal 103, 868–879

    Article  Google Scholar 

  50. Klemperer P. (1998), ‘Auctions with Almost Common Values: The “Wallet Game” and Its Applications’. European Economic Review 42, 757–769

    Article  Google Scholar 

  51. Klemperer P. (1999), ‘Auction Theory: A Guide to the Literature’. Journal of Economic Surveys 13, 227–286

    Article  Google Scholar 

  52. Klemperer P. (2002), ‘What Really Matters in Auction Design’. Journal of Economic Perspectives 16, 169–190

    Article  Google Scholar 

  53. Klemperer P. (2003). ‘Why Every Economist Should Learn Some Auction Theory’. In: Dewatripont M., Hansen L., Turnovksy S. (eds). Advances in Economics and Econometrics: Invited Lectures to Eighth World Congress of the Econometric Society (2000). Cambridge University Press, Cambridge, UK, pp. 25–55

    Google Scholar 

  54. Klemperer P. (2004), Auctions: Theory and Practice. Princeton University Press, Princeton, NJ

    Google Scholar 

  55. Krishna V. (2002), Auction Theory. Academic Press, San Diego

    Google Scholar 

  56. Laffont J.-J. (1997), ‘Game Theory and Empirical Economics: The Case of Auction Data’. European Economic Review 41, 1–35

    Article  Google Scholar 

  57. Laffont J.-J., Robert J. (1996), ‘Optimal Auction with Financially Constrained Buyers’. Economics Letters 52, 181–186

    Article  Google Scholar 

  58. Laffont J.-J., Tirole J. (1987), ‘Auctioning Incentive Contracts’. Journal of Political Economy 95, 921–937

    Article  Google Scholar 

  59. Laffont J.-J., Tirole J. (1993), A Theory of Incentives in Procurement and Regulation. MIT Press, Cambridge, MA

    Google Scholar 

  60. Leonard H. (1983), ‘Elicitation of Honest Preferences for the Assignment of Individuals to Positions’. Journal of Political Economy 91, 461–479

    Article  Google Scholar 

  61. Littlechild S. (2002), ‘Competitive Bidding for a Long-term Electricity Distribution Contract’. Review of Network Economics 1, 1–39

    Article  Google Scholar 

  62. Lusht K. (1994), ‘Order and Price in a Sequential Auction’. Journal of Real Estate Finance and Economics 8, 259–266

    Article  Google Scholar 

  63. Maasland E., Moldovanu B. (2004). ‘An Analysis of the European 3G Licensing Process’. In: Janssen M.C.W. (eds). Auctioning Public Assets: Analysis and Alternatives. Cambridge University Press, Cambridge, UK

    Google Scholar 

  64. Maasland, E. and S. Onderstal (2006), ‘Auctions with Financial Externalities’, Economic Theory, forthcoming.

  65. Maskin E.S., Riley J.G. (1984), ‘Optimal Auctions with Risk Averse Buyers’. Econometrica 52, 1473–1518

    Article  Google Scholar 

  66. Maskin E.S., Riley J.G. (1989). ‘Optimal Multi-Unit Auctions’. In: Hahn F. (eds). The Economics of Missing Markets, Information, and Games. Oxford University Press, New York, pp. 312–335

    Google Scholar 

  67. Maskin E.S., Riley J.G. (2000), ‘Asymmetric Auctions’. Review of Economic Studies 67, 413–438

    Article  Google Scholar 

  68. Matthews S. (1983), ‘Selling to Risk Averse Buyers with Unobservable Tastes’. Journal of Economic Theory 30, 370–400

    Article  Google Scholar 

  69. Maynard Smith J. (1974), ‘The Theory of Games and the Evolution of Animal Conflicts’. Journal of Theoretical Biology 47, 209–221

    Article  Google Scholar 

  70. McAfee R.P., McMillan J. (1986), ‘Bidding for Contracts’. RAND Journal of Economics 17, 326–338

    Article  Google Scholar 

  71. McAfee R.P., McMillan J. (1987a), ‘Auctions and Bidding’. Journal of Economic Literature 25, 699–738

    Google Scholar 

  72. McAfee R.P., McMillan J. (1987b), ‘Competition for Agency Contracts’. RAND Journal of Economics 18, 296–307

    Article  Google Scholar 

  73. McMillan J. (1994), ‘Selling Spectrum Rights’. Journal of Economic Perspectives 8, 145–162

    Google Scholar 

  74. Menezes F. (2003), ‘An Auction Theoretical Approach to Fiscal Wars’. Social Choice and Welfare 20, 155–166

    Article  Google Scholar 

  75. Milgrom P.R. (2004), Putting Auction Theory to Work. Cambridge University Press, Cambridge, UK

    Google Scholar 

  76. Milgrom P.R., Weber R.J. (1982), ‘A Theory of Auctions and Competitive Bidding’. Econometrica 50, 1089–1122

    Article  Google Scholar 

  77. Mirrlees J.A. (1971), ‘An Exploration in the Theory of Optimal Income Taxation’. Review of Economic Studies 38, 175–208

    Article  Google Scholar 

  78. Mirrlees J.A. (1975). The Theory of Moral Hazard and Unobservable Behaviour: Part I, Oxford University, mimeo

    Google Scholar 

  79. Mirrlees J.A. (1976), ‘The Optimal Structure of Incentives and Authority within an Organization’. Bell Journal of Economics 7, 105–131

    Article  Google Scholar 

  80. Mirrlees J.A. (1999), ‘The Theory of Moral Hazard and Unobservable Behaviour: Part I’. Review of Economic Studies 66, 3–21

    Article  Google Scholar 

  81. Moldovanu B., Sela A. (2001), ‘The Optimal Allocation of Prizes in Contests’. American Economic Review 91, 542–558

    Article  Google Scholar 

  82. Myerson R.B. (1981), ‘Optimal Auction Design’. Mathematics of Operations Research 6, 58–73

    Article  Google Scholar 

  83. Noussair C. (1995), ‘Equilibria in a Multi-Object Uniform Price Sealed Bid Auction with Multi-Unit Demands’. Economic Theory 5, 337–351

    Article  Google Scholar 

  84. OECD (2001), ‘Innovations in Labour Market Policies: The Australian Way,’ Policy report, Paris, France.

  85. Offerman T., Potters J. (2005), Does Auctioning of Entry Licenses Induce Collusion? An Experimental Study. University of Amsterdam and Tilburg University, mimeo

    Google Scholar 

  86. Onderstal, S. (2002a), Socially Optimal Mechanisms, CentER discussion paper nr. 34, Tilburg University.

  87. Onderstal, S. (2002b), The Chopstick Auction, CentER discussion paper nr. 35, Tilburg University.

  88. Onderstal S. (2005), Bidding for the Unemployed: An Application of Mechanism Design to Welfare-to-Work Programs. University of Amsterdam, mimeo

    Google Scholar 

  89. Pezanis-Christou, P. (2001), Sequential Auctions with Asymmetric Buyers: Evidence from a Fish Market, IAE-UAB working paper nr. 558.03, Bonn University.

  90. Pipes, D. (1998-1999), ‘Herodotus: Father of History, Father of Lies,’ Loyola University New Orleans: The Student Historical Journal, 30.

  91. Posner R.A. (1975), ‘The Social Costs of Monopoly and Regulation’. Journal of Political Economy 83, 807–828

    Article  Google Scholar 

  92. Riley J.G., Samuelson W.F. (1981), ‘Optimal Auctions’. American Economic Review 71, 381–392

    Google Scholar 

  93. Robinson M. (1985), ‘Collusion and the Choice of Auction’. RAND Journal of Economics 16, 141–145

    Article  Google Scholar 

  94. Rothkopf M.H., Teisberg T.J., Kahn E.P. (1990), ‘Why Are Vickrey Auctions Rare?’. Journal of Political Economy 98, 94–109

    Article  Google Scholar 

  95. SEO and TNO (2004), ‘Buitenlandse Ervaringen met de Aanbesteding van Reïntegratie-diensten’ (‘Foreign Experiences with Tendering Reintegration Services’), consultancy report, Amsterdam, the Netherlands.

  96. Shubik M. (1983). ‘Auctions, Bidding, and Markets: An Historic Sketch’. In: Engelbrecht-Wiggans R., Shubik M., Stark J. (eds). Auctions, Bidding, and Contracting. NewYork University Press, New York, pp. 33–52

    Google Scholar 

  97. Staatscourant (2004), ‘Regeling Veiling procedure en Loting procedure Nummers’ (‘Ruling on the Rules for Conduct of the Auction and Lottery for the Award of Phone Numbers’), Staatscourant 172, 8 September 2004, p. 21.

  98. Swinkels J. (1999), ‘Asymptotic Efficiency for Discriminatory Private Value Auctions’. Review of Economic Studies 66, 509–528

    Article  Google Scholar 

  99. Tullock G. (1967), ‘The Welfare Costs of Tariffs, Monopolies, and Theft’. Western Economic Journal 5, 224–232

    Google Scholar 

  100. Tullock G. (1980). ‘Efficient Rent-Seeking’. In: Buchanan J.M., Tollison R.D., Tullock G. (eds). Towards a Theory of the Rent-Seeking Society. Texas A&M University Press, College Station, pp. 97–112

    Google Scholar 

  101. Verberne, M.L. (2000), Verdeling van het Spectrum (Allocation of Spectrum), Ph.D. thesis, University of Amsterdam.

  102. Vickrey W. (1961), ‘Counterspeculation, Auctions, and Competitive Sealed Tenders’. Journal of Finance 16, 8–37

    Article  Google Scholar 

  103. Vickrey, W. (1962), ‘Auction and Bidding Games,’ in: Recent Advances in Game Theory, Princeton University Conference, 15–29.

  104. Vries S., de, Vohra R.V. (2003), ‘Combinatorial Auctions: A Survey’. INFORMS Journal on Computing 15, 284–309

    Article  Google Scholar 

  105. Weber R.J. (1983). ‘Multiple-Object Auctions’. In: Engelbrecht-Wiggans R., Shubik M., Stark R.M. (eds). Auctions, Bidding, and Contracting: Uses and Theory. New York University Press, New York, pp. 165–191

    Google Scholar 

  106. Weber R.J. (1997), ‘Making More from Less: Strategic Demand Reduction in the FCC Spectrum Auctions’. Journal of Economics and Management Strategy 6, 529–548

    Article  Google Scholar 

  107. Wurman, P.R., J. Zhong and G. Cai (2005), ‘Computing Price Trajectories in Combinatorial Auctions with Proxy Bidding,’ Electronic Commerce Research and Applications, forthcoming.

  108. Zheng C. (2001), ‘High Bids and Broke Winners’. Journal of Economic Theory 100, 129–171

    Article  Google Scholar 

  109. Zulehner C. (2005), Strategic Behavior of Asymmetric Bidders in Sequential Auctions: Evidence from Austrian Cattle Auction. University of Vienna, mimeo

    Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Emiel Maasland.

Additional information

Onderstal gratefully acknowledges financial support from the Dutch National Science Foundation (NWO-VICI 453.03.606).

We thank Bastiaan Overvest, Marta Stryszowska and two anonymous referees for their helpful comments.

An erratum to this article can be found at http://dx.doi.org/10.1007/s10645-006-9025-y

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Maasland, E., Onderstal, S. Going, Going, Gone! A Swift Tour of Auction Theory and its Applications. De Economist 154, 197–249 (2006). https://doi.org/10.1007/s10645-006-9002-5

Download citation

Keywords

  • auctioning incentive contracts
  • efficiency
  • equilibrium bidding
  • multiple objects
  • optimal auctions
  • revenue equivalence