Managerial Economics and Strategy, 2/e

12.5 Auctions

We now turn to another important type of game, called an auction: a sale in which a good or service is sold to the highest bidder. In auctions, players normally devise bidding strategies without knowing other players’ payoff functions.

A substantial amount of exchange takes place through auctions. Government contracts are typically awarded using procurement auctions. In recent years, governments have auctioned portions of the airwaves for radio stations, mobile phones, and wireless Internet access and have used auctions to set up electricity and transport markets. Other goods commonly sold at auction are natural resources such as timber and drilling rights for oil, as well as houses, cars, agricultural produce, horses, antiques, ...