<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>This paper will review important topics on the subject of auction theory and mechanism design, these include: efficiency first and foremost, also revenue comparison between different types of auctions and the issue of incentive compatibility, individual rationality with the general idea and proof that bilateral trade is inefficient. Mechanism design theory tells us that if buyers and sellers both have private information full efficiency is impossible, however Vickrey auction (single unit auction) will be efficient i.e. will put the goods in the hands of the buyers that value them most. However, the conclusion from this paper is that because of overvaluation of bidders the main result is inefficient, i.e. bids are too high. When weak and strong bidders are compared the main conclusion is that strong bidders’ expected payoff is higher in second price auction (SPA), while weak bidder prefers first price auction (FPA) bid.</p>
</abstract>

This paper will review important topics on the subject of auction theory and mechanism design, these include: efficiency first and foremost, also revenue comparison between different types of auctions and the issue of incentive compatibility, individual rationality with the general idea and proof that bilateral trade is inefficient. Mechanism design theory tells us that if buyers and sellers both have private information full efficiency is impossible, however Vickrey auction (single unit auction) will be efficient i.e. will put the goods in the hands of the buyers that value them most. However, the conclusion from this paper is that because of overvaluation of bidders the main result is inefficient, i.e. bids are too high. When weak and strong bidders are compared the main conclusion is that strong bidders’ expected payoff is higher in second price auction (SPA), while weak bidder prefers first price auction (FPA) bid.

Auction theory and a note on game mechanisms

Croatian Review of Economic, Business and Social Statistics

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"Auction theory and a note on game mechanisms"}

This paper will review important topics on the subject of auction theory and mechanism design, these include: efficiency first and foremost, also revenue...

Auction theory and a note on game mechanisms

Published Online: May 29, 2021

Page range: 43 - 59

Received: Nov 02, 2020

Accepted: Mar 17, 2021

DOI: https://doi.org/10.2478/crebss-2021-0004

Keywords
asymmetric auctions, first price auction, Green-Laffont, Myerson-Satterthwaite, second price auction

© 2021 Dushko Josheski et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Auction theory and a note on game mechanisms

Published Online: May 29, 2021

Page range: 43 - 59

Received: Nov 02, 2020

Accepted: Mar 17, 2021

DOI: https://doi.org/10.2478/crebss-2021-0004

Keywordsasymmetric auctions, first price auction, Green-Laffont, Myerson-Satterthwaite, second price auction

© 2021 Dushko Josheski et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
asymmetric auctions, first price auction, Green-Laffont, Myerson-Satterthwaite, second price auction