ANNOUNCEMENTS
Announcements:
Midterm 2 will be on next Thursday May 17, 2012.
CLASS: ARE 100B (Spring 2012)
DATE: May 15, 2012
DAY: Tuesday
NOTETAKER:
Hanson Chan
LECTURE 13
PAGE: 1 of 3
Last Lecture:
Professor has talked about game theories, different strategies, and Nash Equilibrium.
Notes:
- Auctions
o A type of game
o Based on bidding procedure.
- American or English style auction
o Bid Price start low, then risen by an increment, one exception, many throw a high
price one time – “Sucker check”.
- Dutch Auction
o Price starts high, then decline by an increment. 200>190>180.
- Seal-bid Auction
o item advertised for sale.
o A date or time is announced when written bids will be opened,
 Either highest bid is accepted (normal method) at bid price.
 Or highest bid accepted at highest price.
 Electronic auction → such as ebay.
 Similar to American auction.
 Price start low + rises by a fixed.
 Fixed ending time.
 Example: how auction bid type affect outcome.
o 3 potential buyers
 Each with following reservation price: P1 = $100, P2 = $90, P3 = $80.
 Try the American auction, with $5 bid increment.
 Bidding 40, 45, …
 Buyer 1 will definitely win
 She will pay either $90 (if bid 90 before 2 does), or $95 (if 2 bid 90 first)
o Dutch Auction
 Bid starts high – silence, 150 – 125 – 120 … etc.
 When it gets to 100, buyer 1 might or might not bid.
 At P = 90, buyer 2 might or might not bid.
 Price could even fall to 80 or 75.
 (less & less likely).
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ARE 100B (Spring 2012)
Lecture 13
Page 2 of 3
o
o
Sealed-bid auction:
 2 types →
 i) First bid auction, change the highest bid, then pay that price.
o Buyer 1 might bud, pay $100.
o or might bid less ← monetary incentive to underbid.
o Similar to ditch auction.
 ii) Second-bid auction.
o Highest bidder comes win the item.
o Pay second-highest bid price.
o Optimal Strategy – bid true reservation price.
o Buyer 1 wins, $90.
Electronic Auction, like ebay
 Bidding similar to American style , except for deadline.
 Allows for strategy called “Sniping”


Another unethical strategy → this one occur in line American style
auction or ebay auction. “SHILLING” a shill is a fake buyer.
Another way to clarify auction → by the type valu of the item being sold.
- 1) Unique – value auction
o Different buyers have a different reservation price collectable.
- 2) Common Value Auction
o All buyers agree on value per unit, but quantity is uncertain.
 Ex.: oil, gas, drilling leases.
- Problem:
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ARE 100B (Spring 2012)
Lecture 13
Page 3 of 3
- “The minners curse”
o So these firms typically bid < their estimate quantity.
o Another Common situation.
 A building is to be built
 Contractors bid to win the project.
 They must estimate their cost, then add some predit margin.
 If you underestimate cost, you are more likely to win bid.