An Introduction to Auctions

In order to study a class of auctions, we must specify both the economic setting in which the auction takes place and the type(s) of auction procedure under investigation.

The economic setting:


Some procedures:

Mode of analysis

Amazing result

The seller's expected profit (at equilibrium, in the independent private values setting, with risk-neutral bidders) depends on only two things:

The Revenue Equivalence Theorem

In the symmetric independent private values setting (with risk-neutral bidders), if

then the seller's expected revenue from the auction is E[X[2]], irrespective of the choice of auction procedure. In particular, all the procedures listed above yield the same expected revenue.

Here's a simulation spreadsheet illustrating the Revenue Equivalence Theorem.