Macroeconomics and Microeconomics - Auction Theory Essay

Macroeconomics and Microeconomics - Auction Theory - Essay Example The first type of open auctions is called English or ascending bid auctions, where the auction is usually done in real time. In this case, the seller usually sets a low price as the beginning price, after which the price is increased gradually as the bidder offer their prices. The bidders drop out of the auction as their true values are exceeded until the last bidder gets the item at her intrinsic value. The second type of auction is called Dutch or descending bid auctions, where the seller starts the auction at a high price and then gradually drops until the first bidder states the price and takes the item at the stated price (Easley and KleinBerg, 2010). The main area of focus for this paper is sealed bid auctions, which are divided into two types; first-price sealed bid auctions and second-price sealed bid auctions. The first-price sealed bid auction is one where all the buyers submit simultaneous sealed bids to the seller, who opens them and sells the item to the highest bidder a t the stated price (Easley and KleinBerg, 2010). Conversely, second-price sealed bid auctions refer to a case where the buyers submit sealed bids to the seller, who opens them and sells the item to the highest bidder, but at the second highest price. This type of auction is also called Vickrey auctions (Koutsojannis and Sirmakessis, 2009). Informational asymmetry in auctions usually affects the bidding decisions of both the seller and the buyer (Koutsojannis and Sirmakessis, 2009). To describe seller monopoly, consider an auction where the seller attaches a price of x on the item, and the bidder attaches a price of y to the item. In this case, the surplus to the seller and the buyer is...This essay outlines key concepts of the auction theory and stresses the importance of the game theory advances in choosing the right bidding strategy. This paper mainly focuses on first-price and second-price sealed auctions. The types of auctions are usually dispersed between open and sealed auctions, both of which need different types of bidding strategies . The first type of open auctions is called English or ascending bid auctions, where the auction is usually done in real time. The second type of auction is called Dutch or descending bid auctions, where the seller starts the auction at a high price and then gradually drops until the first bidder states the price and takes the item at the stated price The first comparison is between descending bid auctions and first-price auctions, where we know that, in a descending bid auction, the seller lowers the price until the first bidder gets the item at the highest price. Conversely, second-price sealed bid auctions and ascending bid auctions are similar. In the case of first-price sealed bid auctions, the value of the bid affects both the winning fact and how much the winning bidder pays for the item. The game theory setting for this kind of bid is to set up the bidders as players, where a bidder i assigns a value v to the item and bids at a price b. The dominant strategy in the case of second-price sealed bids is a truthful strategy, where the bidder bids the price of her true value as assigned to the item, since deviations from the price does not increase the payoff earned