Homework Question on Auctions
- Imagine that an adequate summary will take approximately one half to one full typed, single-spaced page of text, and two pages for each question (1inch margins and 12 point font).
- In addition to summarizing the reading in your own words, you should answer each of the other questions–depending on the question, a complete answer may take a sentence or a full paragraph.
- What Really Matters in Auction Design” Paul Klemperer, Journal of Economic Perspectives, 2002.
- Read the entire paper, and write your own summary.
- List some drawbacks and some advantages of ascending auctions, from a practicalauction design perspective.
- List some drawbacks and some advantages of sealed-bid auctions, from a practicalauction design perspective.
- Describe the Anglo-Dutch auction rules.
- In what circumstances will the design of an auction be less important?
- Field Experiments on the Effects of Reserve Prices in Auctions: More Magic on theInternet” David Reiley, RAND Journal of Economics, Spring 2006, vol. 37, no. 1, pp.195-211.
- Read the entire paper and write your own summary.
- What question(s) was the experiment designed to answer?
- Describe the set-up of the experiment – the number of treatments, the auction rulesand other procedures, etc.
- What is a variable that could not be controlled in this experiment?
- Explain the meaning of the “Cloister” price to which the article refers. Why didthis value matter?
- Describe the conclusions regarding the effect of reserve prices on the probability ofsale, on auction revenue, and on bidder strategy. Identify whether the experimentresults support theoretical predictions.
Homework Answer on Auctions
- Read the entire paper, and write your own summary
The popularity of auctions has been growing over the years with even government agencies taking part in auctions. Klemperer observes that the issues that matter in an auction design are the similar to those that regulators in other industries have labeled as key concerns. These include discouraging collusive, entry-deterring and predatory behavior. In other words, sound auction design is grounded on sound elementary economics (170).
One major concern that dogs auction design is the risk of collusion among participants whose effect would be the avoidance to bid up prices. Under such a situation, bidders will use the initial levels where prices are yet low and then speculate who will likely win what objects and then tactfully collude to stop pushing up prices. Klemperer observes that challenging this kind of behavior has always been a legal hurdle and outlawing would be cumbersome and end up establish rules that would inhibit bidders’ flexibility thereby making the auction process to be clouded with inefficiencies.
He therefore opines that such challenges could only possibly be solved through better auction designs (172).Klemperer is interested in identifying the pitfalls that surrounding auction design. He has particularly observed that ascending and uniform-price auctions are very vulnerable to collusion and always associated with barriers to entry by bidders. Klemperer has therefore included a final sealed bid stage into the ascending auction to generate the Anglo Dutch auction to strengthen the need for stronger anti-trust policies in auctions.