Auctions: Advances in Theory and Practice

Auctions and competitive bidding institutions are important both for empirical and theoretical reasons. The aim of this chapter is to examine the use of auctions, paying equal attention to theory and practice. While theory suggests equilibrium bidding as a benchmark, there is considerable empirical evidence (from controlled experiments and field data) that actual bidding behavior only loosely follows this normative prescription. Thus, it is important to consider the design of auction institutions anticipating actual bidding behavior. The analysis provides normative guidelines concerning “market” performance. What types of auction institutions are likely to promote efficiency? Alternatively, what auction procedures maximize the seller’s expected revenue? In combination, auction theory and the corresponding empirical evidence can provide direct answers to these questions.