welcome and introduction

1
welcome and introduction
auctions theory, evidence, policy

• Peter Bardsley

2
this workshop

• second in a series of workshops prepared by the
  University of Melbourne for the VPS
• part of an ongoing capacity building partnership
• level is intermediate
• participation in previous workshop is desirable
  but not essential
• we are aware that the audience is very mixed
• if it starts to look complicated, hang in there
  there will be something for everybody

3
the objectives

• to introduce and illustrate some of the basic
  ideas of auction theory
• to show how these ideas can be tested, explored
  and refined in the laboratory
• to show how these ideas are applied to policy
  design
• to work in the simplest possible environment to
  illustrate these concepts
• independent private values model
• more complex environments (common values,
  asymmetric bidders, multiple objects,
  combinatorial and package auctions) will be
  mentioned briefly

4
buying or selling?

• auctions can be used to sell something, or to buy
  something
• procurement auctions, sometimes called reverse
  auctions
• the theory is completely symmetrical
• we will usually talk about selling objects
• the application to procurement auctions is
  immediate just change some words around

5
what do we want allocation mechanisms to achieve?

• match buyers and sellers
• price discovery / terms of trade
• efficient allocation of resources
• voluntary exchange makes both parties better off
• are their any gains from trade that are missed?
• is there any money left lying on the table?
• speed, efficiency, transparency, low transaction
  costs
• maximal revenue, if we are selling minimal cost,
  if we are buying
• robustness the mechanism should work well in a
  range of environments

6
a variety of mechanisms

• beauty parades, negotiated deals
• unstructured pit markets
• village market
• some stock exchanges
• intermediated markets
• intermediary holds inventory, bears risk, stands
  between buyer and seller
• stock exchange specialists, supermarkets, used
  car dealers
• posted price markets
• most shops
• Sydney versus Melbourne house market
• search markets
• haggling in bazaars
• job markets (executives, plumbers, ...)
• auctions of many forms

7
why study auctions?

• wide range of design choices
• tend to be highly efficient
• well suited to situations with a single seller or
  a single buyer
• can be shown to be optimal in many environments

8
first reactions

• what strategies did you follow when you were
  bidding?
• what strategies do you think other people were
  following?
• should you reveal your private information?
• should you bid your full value?
• can you rely on others being truthful?
• which institutions are more profitable for the
  auctioneer?

9
how to get the most out of this workshopthree
key questions

• how does auction design affect behaviour?
• how aggressively do participants bid?
• how does auction design affect performance?
• revenue raise
• efficiency of allocation
• when are apparently different institutions
  actually very similar?
• when are apparently similar institutions actually
  very different?