Open Bid Auctions: A Theoretical and an Experimental Study

Abstract

For centuries, auctions have been used as an efficient market mechanism for selling or procuring goods. Over time, auctions have evolved from its very basic price call-out form to the much more sophisticated simultaneous multi goods design, the bulk of this dramatic evolution taking place in the later part of the twentieth century. Even though the earliest use of auction dates back to around 500 B.C. in history, proper scientific research aiming at improving the effectiveness or expanding the scope of this versatile market mechanism started around the 1960's. The pioneering work of William Vickrey in 1961 opened the floodgates for mathematicians and economists alike, to study this fascinating market mechanism, and within a very short period of time, both the understanding of the mechanism and the scope of its application improved vastly. Over these years, a huge mass of theoretical and empirical research has produced results that introduce newer auction designs and characterize the existing ones. This has also allowed scope for continued research in the field of auctions, thriving for improvements and solutions to yet-to-be answered questions. The main goal of this study is to accomplish just that; present improvements that try to address issues that have not been addressed yet.

The dissertation is structured as follows. The first chapter highlights the progress that has been made in the field of auctions and introduces the advancements made in the more recent field of auction experiments. This serves as an introduction to the other chapters and briefly outlines the important findings both in the traditional theoretical literature, the more recent operational research literature and the alternative experimental literature. The second chapter introduces a new auction model designed to tackle a specific problem encountered in multiple homogeneous goods auctions, which has not been dealt with satisfactorily thus far. The last chapter presents an extension of the existing auction experiment methodologies in an attempt to reveal possible weaknesses in earlier auction experiments and to improve our understanding of important differences between open and sealed-bid auction formats.