Syllabus for E602 AUCTIONS, BARGAINING, PRICING
Spring 2011
LOCATION: C110 (new campus)
Prof. Andy Skrzypacz (with some guest lectures)
Here is a list of topics that I plan to cover in the course.
In the first four weeks (or so) we will cover some of the main topics in auction theory and related
topics in mechanism design. These are listed under the first three groups of papers below. Then we
will move on to a selection of the topics that are described in the remaining groups.
I have not decided on the particular order of all those papers – I will be telling you the plan as we
go. As the class goes, I want to combine classic papers and some relatively new papers on the
topics we discuss so you can get both commonly-used tools and some idea of what is currently
done. I will also try to present some work on related topics by our former and current students.
There will be lecture notes for some of the lectures – I will make copies of the presentations for you
(and post them on coursework). I expect you to read the book(s) whenever the topic is covered in
them and the papers.
It may be easier for you to get the most out of the class if you manage to read before the lecture the
Introduction and the Model section of the papers that I will talk about (if you have time, browse
through the rest of the paper to see what the main results are, but they will be typically described in
the introduction). I encourage you to read the rest of the paper after the class. We will cover some
classic papers (and some new ones too) and it is a good time for you to read them (and not just the
book treatments of them, although I would suggest to read the book treatment before reading the
paper).
There will be graded homework assignments. All problems are on coursework. I will post solutions
there as well. There will be a take-home final exam – I will make the exam available no later than
June 6th and it will be due on June 8th.
Books that cover a lot of auction topics that I recommend are:
Vijay Krishna “Auction Theory”
Paul Milgrom “Putting Auction Theory to Work”
Paul Klemperer “Auctions: Theory and Practice” (this book is available online here: )
http://www.paulklemperer.org/index.htm
“*” in the list of papers indicate the first-order reading.
1. Introduction to Auctions, Revenue Equivalence.
* William Vickrey (1961), "Counterspeculation, Auctions, and Competitive Sealed Tenders",
Journal of Finance, XVI, 8-37.
*Vijay Krishna “Auction Theory” Chapters 2, 3.
Paul Milgrom “Putting Auction Theory to Work” Chapters 1, 2.
R. Preston McAfee; John McMillan (1987) “Auctions and Bidding” Journal of Economic
Literature, Vol. 25, No. 2. (Jun., 1987), pp. 699-738.
Paul Milgrom “Auctions and Bidding (1989): A Primer” The Journal of Economic Perspectives,
Vol. 3, No. 3. (Summer, 1989), pp. 3-22.
Paul Klemperer (1999). "Auction Theory: A Guide to Literature." Journal of Economic Surveys
13(3): 227-286.
Milgrom, Paul R. and Segal, Ilya R., Envelope Theorems for Arbitrary Choice Sets. Econometrica,
Vol. 70, pp. 583-601, 2002.
2. Mechanism Design, Optimal Auctions, Bargaining (Independent Private Values);
*Roger B. Myerson (1981), "Optimal Auction Design", Mathematics of Operations Research, 6 (1),
February 58-73.
*Roger B. Myerson and Mark A. Satterthwaite (1983), "Efficient Mechanisms for Bilateral
Trading", Journal of Economic Theory, 29 (2), April 265-81.
*Jeremy Bulow and John Roberts (1989), "The Simple Economics of Optimal Auctions", Journal of
Political Economy 97 (5), October 1060-90.
*Jeremy Bulow and Paul Klemperer (1996), "Auctions versus Negotiations", American Economic
Review, 86 (1), March 180-94.
*Vijay Krishna “Auction Theory” Chapter 5.
Paul Milgrom “Putting Auction Theory to Work” Chapters 3,4
Peter Cramton, Robert Gibbons, and Paul Klemperer (1987), "Dissolving a Partnership Efficiently",
Econometrica, 55 (3), May, 615-32.
John G. Riley and William F. Samuelson (1981), "Optimal Auctions", American Economic Review,
71 (3), June 381-92.
3. The Linkage Principle, Affiliation, Common Value, Auctions with Contingent Payments.
*Robert G. Hansen (1985) , "Auctions with Contingent Payments", American Economic Review, 75
(4) (September, pp. 862-865.
*DeMarzo, P., Kremer, I. and Skrzypacz, A. (2005), "Bidding with Securities: Auctions and
Security Design," American Economic Review 95 (4) September, 936 – 959.
* Gorbenko, Alexander S. and Malenko, Andrey, Competition among Sellers in Securities Auctions
(July 19, 2010). American Economic Review, Forthcoming: http://ssrn.com/abstract=1102664
*Paul R. Milgrom and Robert J. Weber (1982a), "A Theory of Auctions and Competitive Bidding",
Econometrica 50 (5), September, 1089-122.
*Paul R. Milgrom and Robert J. Weber (1982b), "The Value of Information in a Sealed-Bid
Auction", Journal of Mathematical Economics, 10 (1), June, 105-14.
*Vijay Krishna “Auction Theory” Chapters 6, 7 and 10.
Paul Milgrom “Putting Auction Theory to Work” Chapter 5.
Jacques Cremer and Richard P. McLean (1985) "Optimal Selling Strategies Under Uncertainty for a
Discriminating Monopolist When Demands are Interdependent", Econometrica 53 (2), March 34561.
John G. Riley (1988), "Ex Post Information in Auctions", Review of Economic Studies LV (3), No.
183, July, 409-29.
R. Preston McAfee and John McMillan, "Competition for Agency Contracts", RAND Journal of
Economics, 18 (2) (Summer, 1987), pp. 296-307.
Richard Engelbrecht-Wiggans, Paul R. Milgrom, Robert J. Weber (1983) “Competitive Bidding and
Proprietary Information,” Journal of Mathematical Economics, 11, 161-169.
Kenneth Hendricks and Robert H. Porter (1988) “An Empirical Study of an Auction with
Asymmetric Information”, American Economic Review, 78, (5), pp. 865-883.
Kenneth Hendricks; Robert H. Porter; Charles A. Wilson (1994) “Auctions for Oil and Gas Leases
with an Informed Bidder and a Random Reservation Price,” Econometrica, 62, (6). pp. 1415-1444.
Paul Povel, Rajdeep Singh “Stapled Finance” The Journal of Finance Volume 65, Issue 3, pages
927–953, June 2010.
Yeon-Koo Che and Jinwoo Kim (2010) “Bidding with Securities: Comment” American Economic
Review, 2010, vol. 100, issue 4, pages 1929-35
4. Bargaining with asymmetric information
*Jeremy I. Bulow, "Durable-Goods Monopolists", Journal of Political Economy, 90 (2), April, 31432.
*Fudenberg and Tirole “Game Theory” Chapter 10 “Sequential Bargaining under Incomplete
Information”.
*David Kreps and Robert Wilson (1982) "Reputation and Imperfect Information," Journal of
Economic Theory, 27, 253-279 (the most relevant is the last part of the paper with two-sided
information – we will not cover the first part with one-sided private information).
*Dilip Abreu & Faruk Gul (2000) “Bargaining and Reputation” Econometrica, Volume 68 (1), 85 –
117.
*Muhamet Yildiz (2003) “Bargaining without a Common Prior—An Immediate Agreement
Theorem”, Econometrica Volume 71 (3), 793 – 811.
*Feinberg, Y. and Skrzypacz, A. (2005), "Uncertainty about Uncertainty and Delay in Bargaining",
Econometrica 73 (1) pp. 69-91.
*William Fuchs and Andrzej Skrzypacz (2010) “Bargaining with arrival of new Traders”, American
Economic Review 100 (3), pp. 802–36.
Anat R. Admati and Motti Perry (1987), "Strategic Delay In Bargaining", Review of Economic
Studies, 54 (3), 345-364.
Muhamet Yildiz (2004) “Waiting to persuade,” Quarterly Journal of Economics, 119 (1), 223-248.
Drew Fudenberg, David Levine, and Jean Tirole, (1985), "Infinite-Horizon Models of Bargaining
with One-Sided Incomplete Information" in A. Roth, ed., Game Theoretic Models of Bargaining,
Cambridge University Press, 73-98.
Faruk Gul, Hugo Sonnenschein, and Robert Wilson, (1986): "Foundations of Dynamic Monopoly
and the Coase Conjecture", Journal of Economic Theory, 39, 155-190
Ausubel, L., P. C. Cramton, R. Deneckere (2001). Bargaining with Incomplete Information.
Handbook of Game Theory. R. J. Aumann and S. Hart. 3.
Kalyan Chatterjee and Larry Samuelson (1987) “Bargaining with Two-sided Incomplete
Information: An Infinite Horizon Model with Alternating Offers” Review of Economic Studies 54,
175-192.
Alex Wolitzky (2011) “Reputational Bargaining under Knowledge of Rationality” mimeo.
5. Informed seller and dynamic signaling/market for lemons.
*Jeroen Swinkels (1999) "Education Signalling with Preemptive Offers", Review of Economic
Studies, 66, 949-970.
*Ilan Kremer and Andrzej Skrzypacz (2007) “Dynamic signaling and market breakdown”, Journal
of Economic Theory.
Riley, J. (2001). "Silver Signals: 25 years of Screening and Signaling."
Georg Noldecke and Eric van Damme, (1990), "Signalling in a Dynamic Labour Market", Review
of Economic Studies, 57, 1-23.
Leland, Hayne E. and David H. Pyle. (1977) “Informational Asymmetries, Financial Structure, and
Financial Intermediation,” J. Finance 32:2, pp. 371–87.
Brendan Daley and Brett Green (2009) “Waiting for News in The Dynamic Market for Lemons”
Brendan Daley and Brett Green (2008) “Market Signaling with Grades”
6. Other topics in auctions
Bundling:
*Simon Board "Revealing Information in Auctions: The Allocation Effect," Economic Theory Vol.
38, No. 1 (January 2009), pp. 125-135.
Palfrey, T.: “Bundling decisions by a multiproduct monopolist with incomplete information.”
Econometrica 51, 463–484 (1983)
Multi-unit auctions:
*Mathew Jackson and Ilan Kremer (2006) “The Relevance of a Choice of Auction Format in a
Competitive Environment” Review of Economic Studies Vol. 73, No. 3, pp 961-982.
*Simon Board and Andrzej Skrzypacz (2011) "Revenue Management with Forward-Looking
Buyers"
Krishna “Auction Theory” chapters 12-18.
Entry in Auctions:
Paul Milgrom “Putting Auction Theory to Work” Chapter 6.1 and 6.2.
Dan Levin and James L. Smith (1994), "Equilibrium in Auctions with Entry", American Economic
Review, 84 (3), June 585-99.
Richard Engelbrecht-Wiggans (1993), "Optimal Auctions Revisited", Games and Economic
Behavior, 5 (2), April 227-39.
Collusion in auctions:
*Preston R. McAfee and John McMillan, “Bidding Rings”, American Economic Review 82 (1992),
579- 99.
Susan Athey and Kyle Bagwell, “Optimal Collusion under Private Information” RAND Journal of
Economics, 2001, vol. 32, issue 3, pages 428-65.
Andrzej Skrzypacz and Hugo Hopenhayn (2004) "Tacit Collusion in Repeated Auctions" Journal of
Economic Theory, 114 (1), pp. 153-169.