Vickrey Auction
en.wikipedia.org
en.wikipedia.org
The book goes on to describe the UK 3G Telecom license auction[1] and explain how it went much better. In summary it was more like a typical auction but instead of bidders proposing bids, the price went up gradually and the the bidders did something like stay as the price went up or leave when the price went too high for them.
[0]: https://blogs.cornell.edu/info2040/2022/10/31/when-an-auctio... [1]: https://www.nuff.ox.ac.uk/economics/papers/2002/w4/biggest29...
In a case like this if you thought the market value was $100k, someone with no interest in the license should go ahead and bid something like $60k anyways. If everybody else placed silly bids like $4 "just in case nobody else bids for real", you'll win and resell it and walk away with $40k profit.
Of course this assumes there is an actual market for the thing -- that a telecoms company really will take it off your hands for $100k.
Although if there really is only one person in the world who wants something and they would pay $100k for it... and literally nobody else has any interest in it at all... then there's a good argument to be made that it really is worth $0. Like a remote island that is utter perfection for one hermit, but of zero interest to anyone else.
Your example relies on the telecom company (or any secondary buyer) not bidding in the auction or bidding only $4. A strictly dominant strategy for the telecom company would be to bid $100k in the auction, winning it for $60k (the second-highest price).
No, in a case like this, you would risk having to fork over 60k, and you would in reality win nothing. The company that bid 100k gets it for 60k, you spend and receive nothing.
The other benefit (for the seller) mentioned was that bidders get a social signal that other companies think the license is apparently worth the current price, which could pressure the price upwards. Versus Vickrey Auctions where it's a completely blind bid.
If you're curious, if you google "undercover economist vickrey auction uk" you may or may not find a ctrl+f searchable pdf where you can read this section yourself.
The flip side is you would have to tell people that while you're going to increase what you pay them your tolerance for collusion (and it is essentially tolerated today) will go down, and mean it.
Kevin Lynagh wrote a great blog post about how he convinced a friend to sell a portion of his inventory of small-run of mechanical keyboards via Vickrey auction.[0]
The friend normally sold the keyboards for $500, but the winners of the Vickrey auction paid $1,668. They were all willing to pay substantially more, too, with the highest bidder offering $2,684.
FWIW if you Google Brand New Model F Keyboards, they're currently doing a sort-of vickrey auction for some upcoming novel designs.
A pair of headphones is currently bid up to $55, you place a max bid of $100, and at the end, if the final max bid among every else is $80, then you win them for $81.
Which is why I never understand complaints against eBay "snipers", who bid in the last couple seconds of an auction. If you put in your actual honest max bid, the timing simply doesn't matter.
This means you have to wait until the auction finishes, before you can bid at another auction. Constantly failing auctions because of some hidden bidder means you are wasting your time. It is only worth bidding in the last 30 minutes.
This is definitely true if there's more than one item listed, but it's still got nothing to do with sniping. It's just the fact that eBay auctions usually last for 7 days.
People don't necessarily know their actual max bid.
Obviously that max bid can change over time, i.e. if they discover the same item cheaper elsewhere two days later, but at any given point in time people know their actual max bid.
If there were only one instance of the thing you wanted, then there would indeed be no reason to complain about snipers. But if there's multiple different auctions, each selling one of the thing you want, you can't bid on a second one until you're outbid on the first one, or you'll risk getting stuck having to buy them both. Snipers thus result in you being "locked out" of the other auctions for way longer than necessary.
Vickery Auctions are one of many in the auction format bestiary, and like all classical formats, they predate both computers and modern auction theory. What's really cool these days (and I'm admittedly biased since it's my space) sits at the intersection of computer science and economics. Economic mechanisms and auction formats that use everything from SAT solving and combinatorial optimization to machine learning and function approximation to drive better real-world economic outcomes.
https://snigel.com/blog/what-is-bid-shading#:~:text=Bid%20sh....
In practice, it's a lot more convoluted, but the basic principle is fascinating.
[0]: https://en.m.wikipedia.org/wiki/Vickrey%E2%80%93Clarke%E2%80...
I know everyone hates blockchain, I kind of do too, but Handshake I found genuinely interesting.
Disclaimer, I own some Handshake names so you could say I'm shilling for it but mostly the project appears dead anyway...
Hey look at me! I'm trying to buy a domain over here! Come compete with me!
It has no value to anyone except me and anyone that can usurp it and try to sell it to me. I don't want to compete with a bunch of crypto bros that have tons of paper money (aka coins) in a low liquidity system, so I opted not to bother.
Now I'm glad I didn't bother. It would have been a huge hassle just to get HNS (?) and now there are tons of blockchain TLD startups. With the collisions that creates they're basically recreating the namespace fragmentation and ambiguity that results from every platform having independent handles.
Last time I checked (not very recently), all the other blockchain domain systems were worse than Handshake. Doesn't mean they won't win...
This means all bidders in the auction have a reason to send an honest bid rather than trying to game the system.
The person "selling" in the auction also has an efficient outcome.
If the bidders collude, they can get a very low price. This is (obviously) true of most auction systems, but for sufficiently public English auctions, bidders that are otherwise uninterested in an item might bid on an item that is going for obviously far below market.
Imagine we have four people competing, who each have a max bid of:
Alice: 100, Bob: 150, Charlie: 155, Diana: 180,
In a standard auction bidding would, say, start at 50. When the cost exceeded 100 Alice would drop out, similarly for Bob at 150, and Charlie at 155. So Diana would win and pay 155 (plus maybe one bid-increment, depending on who bid first).
So, if each simply submitted their max bid under the Vikrey auction rules, Diana would win, and pay 155. The whole bidding upwards process can be avoided, which is by some standard more efficient, and everyone pays essentially the same as they would under and English auction.
In this version, you just bid to win and the seller lets you adjust down to that perfect "just barely winning" bid afterwards.
It turns out the seller makes more by everyone bidding to win than they lose by letting the winner adjust their bid after winning.
That's because the 2nd place bid ends up being higher than the winner's used to be.
For bidding on jobs (e.g., highway construction) one normally takes the lowest bid, but the lowest bidder will not make any profit and might lose money on the deal, thus putting the project at risk. What might happen in those cases is that corruption takes root and the lowest bidder gets paid more money illegally.
In any case, sealed bid, second price bidding solves the problem by removing the incentive to offer the best price and instead offer the real value.
Well, kijiji buyers were not into that. No replies. Just one guy who told me it was the dumbest ad he had ever read. So, I'm still sitting here staring at those ironmaster dumbbells.
If you want, post for sale high, and lower the price over time until you get a sale.
Does anyone have more info on this topic?
In the real world, you know:
(1) all bids are submitted before being reviewed
(2) the highest bidder is actually going to pay the second price, and there's some friction in the form of a buyer's premium that makes it cost inefficient to immediately resell the item
Neither of these hold in the ad space.
Re (1), if you're trafficking ads through GAM, Google gets a chance to see the highest bid before deciding to commit to a bid.
Re (2), a publisher can insert fake line items that dynamically activate on a per-impression level. The goal of the fake line item is to be a stalking horse to artificially inflate the second-highest bid so that the second-price auction is effectively a first-price auction. If the publisher accidentally bids too high and wins the auction, they can just run the auction again.
Second price auctions online are great, but they're not strategyproof. You still need a bidding strategy.
For thin/small/sparse markets they simply don't work. You need a first price auction.
Google definitely game their own 2nd price auction, but this is just one reason amon many they're not strategyproof.
Most pay per click ad platforms have an API that let you set the bid.
> Most pay per click ad platforms have an API that let you set the bid.
even when you are let to set the bid, usually the auction is not conducted just based on your bid but also adjustments from the probability that you will actually pay out
This is not for open web exchanges, referring more to stuff like adwords, facebook, etc.
The bid is just an input you control into an opaque function where the output is some cost and conversions
They never literally did this, but ended up doing some convoluted scheme involving subsidies and rebates that, according to a recent lawsuit, amounted to something equivalent.
First price auctions don't have that problem -- you know exactly what you should pay if you win.