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Avoid the Hustle

Auction

Category: Essay Writing

From the syllabus: �In approximately 5 pages, you will describe a historical or contemporary example of an auction, how it is conducted, and how it relates to the theoretical models and concepts that we have studied in class.� Here is some additional information.

Topic
Some of the goods sold at auction include stamps, timber, fish, flowers, cars, art and wine, radio spectrum licenses, and abandoned storage units. They are used for procurement (these are sometimes called �reverse auctions�), for entertainment (Swoopo is one example of these �penny auctions�), and in takeovers of companies.
You may write about one of the auctions mentioned here, if you wish, but you are also encouraged to seek different topics and additional sources. I hope to read about a variety of auction applications when I read your papers � perhaps some that I have not heard of before.

Two warnings on topic selection:
1. I recommend against choosing eBay auctions your project topic. I would prefer for
you to learn about a different auction application, so that you can expand the range
of your knowledge about auctions. If you want to write about eBay, you will have to
investigate beyond the basic questions listed in the next section � feel free to consult
with me if you have in mind a specific research topic.
2. If you choose as your topic a slave auction, you must take extra care to write with
sensitivity, demonstrating to the reader that you comprehend the moral as well as the
economic dimensions of such an event.

Content
Here are some questions that can help guide you as you learn about your chosen topic. Don�t
let the length of this list intimidate you! It is meant to help you get started in your thinking
and researching. You do not have to answer all of these questions, and you may find that
there are other aspects of the auction that are important to discuss.
1. Seller(s)
� What good(s) or service(s) for sale? Does it have any value to the seller if it goes
unsold?
1
� What choices does the seller make in setting up the auction � does the seller set
a reserve price, advertise the auction, distribute information to the bidders?
� What information does the seller have ahead of time about the item being sold
and about the bidders in the auction?
2. Buyers
� What kind of bidders participate in the auction? What level of experience do
they typically have? Do you believe that bidders tend to be fairly similar to one
another, or can they be separated into distinct categories?
� How do bidders learn about the auction? What information does the bidder have
about the item(s) being sold?
� What use or interest do they have in obtaining the item?
� Is there a cost to participating in the auction � perhaps a fee charged by the seller,
or perhaps a cost in money, time, or other resources in order to prepare or take
part in the auction?
� How many bidders are there in this auction (or a typical auction of this kind)?
� Do you think that the bidders are risk neutral? Risk averse? Risk seeking?
3. Auction Rules and Outcomes
� When and where does the auction take place?
� How are bids submitted? (In person? Electronically? In writing? Over the
phone?)
� How is the winner and the price determined?
� Is this auction static or dynamic?
� How long does a typical auction of this kind last?
� Does the seller communicate with or observe buyers� reactions over the course of
the auction?
� Are bidders aware of how many other bidders are in the auction? Do they know
who they are competing with?
� Can bidders communicate with or observe one another over the course of the
auction?
� Is there any indication that bidders cooperate with each other to keep prices low?
If cheating might occur, what would it look like in this auction?
� Do sellers have an opportunity to cheat? Why should buyers trust the sellers?
4. Theory
� Consider the assumptions of the independent private values model. What are
some specific reasons to believe that this particular auction is a good or a bad fit
for that model? If you could change the model in one way, what change do you
think would be most important?
� Do you think that this auction best fits the private value model, the common
value model, or is it in between?
� Do you expect that bidders are aware of the equilibrium bidding strategy of this
auction? Do you think that most (if not all) of the bidders behave in a way that�s
reasonably close to the equilibrium bidding strategy?
� Does the information you have about the outcome of the auction (if any) lead you
to believe that the outcome matches what the theory would predict?

Format
I expect that about 5 pages of double-spaced text (using typical ) will be adequate to present
the following:
1. A complete description of the auction. (The first three lists of question will give you
an idea of the kind of material to present here.)
2. A discussion of how this auction application compares to the theory we have learned.
(See the fourth list of questions above.)
In addition, I expect you to present a bibliography of the sources that you consulted. I
am not particular about which style of citation that you use. What matters � and it matters
very much � is that I can easily identify the source of the information that you present, and
I can look up the source for myself to verify its content if necessary.