This paper provides an elementary, non-technical, survey of auction theory, by introducing and describing some of the critical papers in the subject. (The most important of these are reproduced in a companion book, The Economic Theory of Auctions, Paul Klemperer (ed.), Edward Elgar (pub.), forthcoming.) We begin with the most fundamental concepts, and then introduce the basic analysis of optimal auctions, the revenue equivalence theorem, and marginal revenues. Subsequent sections address risk-aversion, affiliation, asymmetries, entry, collusion, multi-unit auctions, double auctions, royalties, incentive contracts, and other topics. Appendices contain technical details, some simple worked examples, and a bibliography for each section.

ome detail more recent developments in the economic theory of choice, and modifications to this theory that are being forced by experimental evidence from cognitive psychology. I will close with a survey of statistical methods that have developed as part of the research program on economic choice behavior. Science is a cooperative enterprise, and my work on choice behavior reflects not only my own ideas, but the results of exchange and collaboration with many other scholars. 1 First, of course, is my co-laureate James Heckman, who among his many contributions pioneered the important area of dynamic discrete choice analysis. Nine other individuals who played a major role in channeling microeconometrics and choice theory toward their modern forms, and had a particularly important influence on my own work, are Zvi Griliches, L.L. Thurstone, Jacob Marschak, Duncan Luce, Danny Kahneman, Amos Tversky, Moshe Ben-Akiva, Charles Manski, and Kenneth Train. A gallery of their p

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We present new identification results for models of first-price, second-price, ascending (English), and descending (Dutch) auctions. We analyze a general specification of the latent demand and information structure, nesting as special cases the pure private values and pure common values models, and allowing both ex ante symmetric and asymmetric bidders. We address identification of a series of nested models and derive testable restrictions that enable discrimination between models on the basis of observed data. The simplest model–that of symmetric independent private values–is nonparametrically identified even if only the transaction price from each auction is observed. For more complex models, identification and testable restrictions are obtained when additional information of one or more of the following types is available: (i) the identity of the winning bidder or other bidders, (ii) one or more bids in addition to the transaction price; (iii) exogenous variation in the number of bidders; (iv) bidder-specific covariates; (v) auction-specific covariates. While many private values (PV) models are nonparametrically

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The accurate assessment of participants’ private information may critically affect policy recommendations in auction markets. In many auction environments estimation of the private information distribution may be complicated by the presence of unobserved heterogeneity. This problem arises when some of the information available to all bidders at the time of the auction is subsequently not observed by the researcher. This paper develops a semi-parametric method that allows a researcher to uncover the distribution of bidders’ private information in a standard First-Price procurement auction when unobserved auction heterogeneity is present. Sufficient identification conditions are derived and a two-stage estimation procedure to recover bidders’ private information is developed. The procedure is applied to data from Michigan highway procurement auctions and compared to the estimation procedures traditionally used in the context of highway procurement auctions. The estimation results suggest that ignoring unobserved auction heterogeneity is likely to result in substantially biased estimates and may lead to erroneous policy recommendations.

This paper considers the structural estimation of the affiliated private value (APV) model in first-price sealed-bid auctions. The model allows for bidders' individual efficiencies and opportunity costs, while permiting dependence among bidders' private values through affiliation. We establish the nonparametric identification of the APV model, characterize its theoretical restrictions, and propose a computationally convenient and consistent two-step nonparametric estimation procedure for estimating the joint private value distribution from observed bids. Using simulated bid data we provide a step by step guide on how to implement our procedure and show the good behavior of our estimator in small samples.

I examine a model of a uniform price auction of a perfectly divisible good with private information in which the bidders submit discrete bidpoints, and hence step functions, rather than continuous downward sloping demand functions. I characterize necessary conditions for equilibrium bidding. The characterization result reveals a close relationship between bidding in multiunit auctions and oligopolistic behavior. I demonstrate that an indirect approach to the revenue comparisons of discriminatory and uniform price auctions is not valid if bid functions have steps. In particular, bidders may bid above their marginal valuation in a uniform price auction. I also use the necessary conditions for structural estimation. I examine a dataset consisting of individual bids in uniform price treasury auctions of the Czech government. I propose an alternative method for evaluating the performance of the employed mechanism. My results suggest that the uniform price auction performs well, both in terms of efficiency of the allocation and in terms of revenue maximization. I estimate that the employed mechanism failed to extract at most 0.03 % (in terms of the annual yield of T-bills) worth of expected surplus while implementing an allocation resulting in almost all of the efficient surplus.

We develop ecopyBB#LL models of ascending (English) auctions which allow for both bidder asymmetries as well ascyBDV and/or private valuecueyV49#; in bidders' underlying valuations. We show that the equilibrium inverse bidfuncDVBD ineac round of theaucALC are implicyxV4D#Vyc (pointwise) bya system of nonlinear equations, so thatctyA;L4Ay for theexistenc and uniqueness of an incVAVyxVD;#DycxVD;#DycyB areessentiallyidenticc to those whic ensure a unique and incL###yx solution to the system of equations. We exploit the ceyCB;4#yxV; trac4#yxV;CB thiscsyB4D9VyxVCABC in order to develop anecVVCLyxVC model, thus extending the literature onstrucDyxV estimation ofaucCVB models. Finally, an empiricx example illustrates how equilibrium learning affects bidding during theceyVL of the auction.

We develop tests for the presence of common values at symmetric rst-price sealed-bid auctions. These tests are nonparametric, only require observation of the bids submitted at each auction, and are based on the observation that the winner's curse is present only in common value auctions. We build on the recent work of Guerre, Perrigne, and Vuong (2000) and Li, Perrigne, and Vuong (1999), who devise methods for recovering particular functionals of bidders' latent signals from bidding data. We point out that under the common-value hypothesis, the distribution of these functionals is strictly increasing (in a rst-order stochastic dominance sense) in the number of bidders, whereas under the private value hypothesis these distributions are identical across all numbers of bidders. This forms the basis of our tests. We develop the asymptotic distribution theory for our tests and evaluate their performance in a variety of Monte Carlo experiments. We illustrate their use in a case study of Un...