Microeconomics: Theory and Applications with Calculus, 4e

13.3 Auctions

To this point, we have examined games in which players have complete information about payoff functions. We now turn to an important game, the auction, in which players devise bidding strategies without knowing other players’ payoff functions.

An auction is a sale in which a good or service is sold to the highest bidder. 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, as well ...