8,895 research outputs found

    Market Institutions: An Expository Essay

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    This essay provides an elementary, unified introduction to the models of market institutions that go beyond the competitive model of price-taking behavior on both sides of the market. Several models of market institutions that govern price determination are explored and compared, including contracting, posted prices, bilateral bargaining, middlemen, and auctions. While equilibrium models still do not capture the full possibilities for market behavior, modeling specific market institutions reduces the level of abstraction inherent in the standard competitive model.market institutions; contracting; posted prices; bilateral bargaining; middlemen; auctions

    On Seller Estimates and Buyer Returns

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    This paper revisits recent empirical research on buyer credulity in arts auctions and auctions for assets in general. We show that elementary results in auction theory can fully account for some stylized facts on asset returns that have been held to suggest that sellers of assets can exploit buyers by providing biased estimates of asset values. We argue that, rather than showing that buyers are credulous, the existing evidence can serve as an indirect test of the rationality assumptions underlying auction theory

    Using and Abusing Economic Theory

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    Economic Theory is often abused in practical policy-making. There is frequently excessive focus on sophisticated theory at the expense of elementary theory; too much economic knowledge can sometimes be a dangerous thing. Too little attention is paid to the wider economic context, and to the dangers posed by political pressures. Superficially trivial distinctions between policy proposals may be economically significant, while economically irrelevant distinctions may be politically important. I illustrate with some disastrous government auctions, but also show the value of economic theory.

    Auctions: Theory and Practice

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    This book is a non-technical introduction to auction theory; its practical application in auction design (including many examples); and its uses in other parts of economics. It can be used for a graduate course on auction theory, or – by picking selectively – an advanced undergraduate or MBA course on auctions and auction design. Part A introduces the basic theory. Part B shows how modern auction-theoretic tools illuminate a range of mainstream economic questions that are superficially unconnected with auctions. Part C discusses practical auction design. Part D describes the one-hundred-billion dollar 3G mobile-phone license auctions. None of the writing is technical, except in the Appendices. The material was presented as the inaugural (2003) Toulouse Lectures in Economics and is forthcoming at Princeton University Press. This document contains the Contents, Preface and Introduction to the book. A draft of the FULL BOOK is available at http://www.paulklemperer.org.Auctions, Bidding, Auction Theory, Mechanism Design, Telecommunications, Spectrum Auctions, 3G, UMTS

    Learning to bid in revenue-maximizing auctions

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    We consider the problem of the optimization of bidding strategies in prior-dependent revenue-maximizing auctions, when the seller fixes the reserve prices based on the bid distributions. Our study is done in the setting where one bidder is strategic. Using a variational approach, we study the complexity of the original objective and we introduce a relaxation of the objective functional in order to use gradient descent methods. Our approach is simple, general and can be applied to various value distributions and revenue-maximizing mechanisms. The new strategies we derive yield massive uplifts compared to the traditional truthfully bidding strategy

    A Formal Separation Between Strategic and Nonstrategic Behavior

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    It is common in multiagent systems to make a distinction between "strategic" behavior and other forms of intentional but "nonstrategic" behavior: typically, that strategic agents model other agents while nonstrategic agents do not. However, a crisp boundary between these concepts has proven elusive. This problem is pervasive throughout the game theoretic literature on bounded rationality and particularly critical in parts of the behavioral game theory literature that make an explicit distinction between the behavior of "nonstrategic" level-0 agents and "strategic" higher-level agents (e.g., the level-k and cognitive hierarchy models). Overall, work discussing bounded rationality rarely gives clear guidance on how the rationality of nonstrategic agents must be bounded, instead typically just singling out specific decision rules and informally asserting them to be nonstrategic (e.g., truthfully revealing private information; randomizing uniformly). In this work, we propose a new, formal characterization of nonstrategic behavior. Our main contribution is to show that it satisfies two properties: (1) it is general enough to capture all purportedly "nonstrategic" decision rules of which we are aware in the behavioral game theory literature; (2) behavior that obeys our characterization is distinct from strategic behavior in a precise sense

    On the Complete Information First--Price Auction and its Intuitive Solution

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    Despite the popularity of auction theoretical thinking, it appears that no one has presented an elementary equilibrium analysis of the complete information first-price sealed-bid auction mechanism when the bidding space has a finite grid. This paper aims to remedy that omission. We show that there always exists a "high price equilibrium" which can be considered "the intuitive solution" (an agent with the highest valuation wins the auction bidding at the second-highest valuation). Although there might be other "low price equilibria", we also show that when there are two bidders "the intuitive solution" is the unique limiting equilibrium when the grid size goes to zero and ties are randomly broken.First-price auctions; undominated Nash equilibria.

    Auctions: Theory and Practice

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    Governments use them to sell everything from oilfields to pollution permits, and to privatize companies; consumers rely on them to buy baseball tickets and hotel rooms, and economic theorists employ them to explain booms and busts. Auctions make up many of the world's most important markets; and this book describes how auction theory has also become an invaluable tool for understanding economics. Auctions: Theory and Practice provides a non-technical introduction to auction theory, and emphasises its practical application. Although there are many extremely successful auction markets, there have also been some notable fiascos, and Klemperer provides many examples. He discusses the successes and failures of the one-hundred-billion dollar "third-generation" mobile-phone license auctions; he, jointly with Ken Binmore, designed the first of these. Klemperer also demonstrates the surprising power of auction theory to explain seemingly unconnected issues such as the intensity of different forms of industrial competition, the costs of litigation, and even stock trading 'frenzies' and financial crashes. Engagingly written, the book makes the subject exciting not only to economics students but to anyone interested in auctions and their role in economics.markets, industrial competition, litigation, stock trading, financial crashes

    On Seller Estimates and Buyer Returns

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    This paper revisits recent empirical research on buyer credulity in arts auctions and auctions for assets in general. We show that elementary results in auction theory can fully account for some stylized facts on asset returns that have been held to suggest that sellers of assets can exploit buyers by providing biased estimates of asset values. We argue that, rather than showing that buyers are credulous, the existing evidence can serve as an indirect test of the rationality assumptions underlying auction theory.Auctions; information disclosure; seller manipulation; buyer credulity
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