Second-Price Auctions

Pak-Sing Choi and Felix Munoz-Garcia

Chapter 1 in Auction Theory, 2021, pp 1-26 from Springer

Abstract: Abstract We start our analysis of auction formats with the second-price auction, where the winning bidder does not pay the bid he submitted but, instead, the second-highest bid. This auction format is relatively easy to analyze, requiring limited mathematical steps, and thus we believe that it can serve as a first approximation to bidding behavior for non-technical readers. Examples of this auction format include eBay sales, auctioning radio spectrums, and the pricing that search engines, such as Google, Bing, or Yahoo, use to sell keyword-based advertising.

Keywords: Second-price auction; Second-price auction under complete information; Second price-auction under incomplete information; Discrete valuations; Continuous valuations; Uniform distribution; Ebay; Bing; Google; Yahoo; Radio spectrum; Keyword-based advertising; Bid shading; More bidders; Risk aversion; Risk neutrality; Risk loving; Correlated valuations; Efficiency; English auction; Initial bid; Reservation price; Ascending bids; Expected revenue; Second-order statistic; Third-order statistic; K-th order statistic; Entry fee; Symmetric bids; Asymmetric bids; Collusion; Budget constraints; Affordable bids; Weakly dominant strategy; Rivals’ bid profile; Highest bidder; Second highest bidder; Third highest bidder; Overbidding; Incentives to deviate; Payoff from winning; Payoff from losing; Probability of winning; Exponential distribution; Standing bid; Pareto efficiency; Price clock; Raising hands; Second-highest valuation; Third-highest valuation; Kth-highest valuation; Other distribution forms; Rate parameter in exponential distribution; Bayesian Nash equilibrium; Bid equal to valuation (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/978-3-030-69575-0_1

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