A Primer on Auction Design, Management, and Strategy

Auctions are highly structured market transactions primarily used in thin markets(markets with few participants and infrequent transactions). In auctions, unlike most other markets,offers and counteroffers are typically made within a structure defined by a set of rigid andcomprehensive rules. Because auctions are essentially complex negotiations that occur within a fullydefined and rigid set of rules, they can be analyzed by game theoretic models more accurately andcompletely than can most other types of market transactions.

This book offers aguide for modeling, analyzing, and predicting the outcomes of auctions, focusing on the applicationof game theory and auction theory to real-world auction design and decision making. After a briefintroduction to fundamental concepts from game theory, the book explains some of the moresignificant results from the auction theory literature, including the revenue (or payoff)equivalence theorem, the winner's curse, and optimal auction design. Chapters on auction practicefollow, addressing collusion, competition, information disclosure, and other basic principles ofauction management, with some discussion of auction experiments and simulations. Finally, the bookcovers auction experience, with most of the discussion centered on energy and telecommunicationsauctions, which have become the proving ground for many new auction designs. A clear and conciseintroduction to auctions, auction design, and auction strategy, this Primer will be an essentialresource for students, researchers, and practitioners.

David J. Salant is IDEI Associated Researcher and Member of the Toulouse School of Economics (TSE). An auction consultant for more than twenty years, he was the primary auction strategist for auctioneers and bidders in dozens of telecom and spectrum auctions around the world.