Bidding Strategy (Other Auctions)
Sealed Bid Auction Strategy
You should bid:
- Slightly more than what you expect the highest other bid to be.
-
$v$ - your value of the item.
In this case you will make zero profit.
You can also play mind games to make your opponents think you have a lower value of the item. This way they will bid lower in response.
- Every bid below $v$ is rationalisable.
Second Bid Sealed Auction Strategy
You should:
- Bid your valuation $v$.
In this case you will pay the next valuation lower ($t$) than $v$ and you will make at least zero profit.
Japanese Auction Strategy
You should always drop out when the auction hits your value $v$.
Deterministic All Pay Sealed Bid Auction Strategy
- Any bid below the valuation $v$ is rationalisable.
With rational bidders the seller can expect to receive the value of the item in payouts, despite all paying:
- In reality most people overbid.
Deterministic All Pay English Auction Strategy
The dollar auction is the best known example of this type:
- The item to be sold is one dollar.
Assume a minimum increase of 40¢:
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It is rationalisable to bid infinitely, provided that the bid improves the marginal.
The marginal is the difference in profit from the last bid.
Rationality doesn’t guarantee a good outcome. You can gain arbitrarily high losses in an auction of this type.
Non-deterministic All Pay Auction Strategy
The expected outcome in a lottery for all players, including the seller, is zero.
Generally this is not the case as the seller takes a profit by giving prizes worth less than the sum of the tickets.
In practice, some money can be made from irrationality.