Auctions and Mechanisms

Rohit Prasad ()
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Rohit Prasad: Management Development Institute Gurugaon, Economics and Public Policy

Chapter 7 in A Case-Based Approach to Game Theory, 2026, pp 211-235 from Springer

Abstract: Abstract This chapter introduces mechanism design—the reverse engineering of games to achieve desired outcomes. It begins with a deep dive into auction theory, explaining how different formats (first-price, second-price, ascending-bid) elicit different bidding behaviours. Case studies include IPL player auctions, spectrum sales, and internet ad word markets. The model of all-pay auctions, where one bidder wins the object but every bidder foregoes their entire bid amount, is used to explain the over-allocation of resources in electoral contests. The chapter also applies the same model in the winner-takes-all industries of the Internet to argue that the increase in social resources flowing to such industries and the cosy handshake between such industries and elected representatives explain the rapid increase in the money expended in elections. It ends with a discussion of matching mechanisms, especially the Gale–Shapley algorithm, and how they could revolutionize future labour markets.

Date: 2026
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DOI: 10.1007/978-981-95-4302-1_7

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