Auction Theory, 2nd Edition

Chapter | Five

Mechanism Design

An auction is one of many ways that a seller can use to sell an object to potential

buyers with unknown values. In an auction, the object is sold at a price deter-

mined by competition among the buyers according to rules set out by the seller—

the auction format—but the seller could use other methods. The seller could post

a fixed price and sell the object to the first arrival. Or the seller could negoti-

ate with one of the buyers—say, one chosen at random. The seller could also

hold an auction and then negotiate with the winner. The range of options is vir-

tually unlimited. This chapter considers the underlying allocation problem by

abstracting away from the details of any particular selling format and asking the

question: ...