Auction Theory, 2nd Edition

Chapter | T w o

Private Value Auctions:

A First Look

We begin the formal analysis by considering equilibrium bidding behavior in

the four common auction forms in an environment with independently and iden-

tically distributed private values. In the previous chapter we argued that the

open descending price (or Dutch) auction is strategically equivalent to the first-

price sealed-bid auction. When values are private, the open ascending price (or

English) auction is also equivalent to the second-price sealed-bid auction, albeit

in a weaker sense. Thus, for our purposes, it is sufficient to consider the two

sealed-bid auctions.

This chapter introduces the basic methodology of auction theory. We postu-

late an informational environment consisting of (1) a