A Vickrey auction or sealed-bid second-price auction (SBSPA) is a type of sealed-bid auction. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins but the price paid is the second-highest bid. This type of auction is strategically similar to an English auction and gives bidders an incentive to bid their true value. The auction was first described academically by Columbia University professor William Vickrey in 1961[1] though it had been used by stamp collectors since 1893.[2] In 1797 Johann Wolfgang von Goethe sold a manuscript using a sealed-bid, second-price auction.[3]
Vickrey's original paper mainly considered auctions where only a single, indivisible good is being sold. The terms Vickrey auction and second-price sealed-bid auction are, in this case only, equivalent and used interchangeably. In the case of multiple identical goods, the bidders submit inverse demand curves and pay the opportunity cost.[4]
Vickrey auctions are much studied in economic literature but uncommon in practice. Generalized variants of the Vickrey auction for multiunit auctions exist, such as the generalized second-price auction used in Google's and Yahoo!'s online advertisement programmes[5][6] (not incentive compatible) and the Vickrey–Clarke–Groves auction (incentive compatible).
^Vickrey, William (1961). "Counterspeculation, Auctions, and Competitive Sealed Tenders". The Journal of Finance. 16 (1): 8–37. doi:10.1111/j.1540-6261.1961.tb02789.x.
^Lucking-Reiley, David (2000). "Vickrey Auctions in Practice: From Nineteenth-Century Philately to Twenty-First-Century E-Commerce". Journal of Economic Perspectives. 14 (3): 183–192. doi:10.1257/jep.14.3.183.
^Benny Moldovanu and Manfred Tietzel (1998). "Goethe's Second-Price Auction". The Journal of Political Economy. 106 (4): 854–859. CiteSeerX 10.1.1.560.8278. doi:10.1086/250032. JSTOR 2990730. S2CID 53490333.
^Jones, Derek (2003). "Auction Theory for the New Economy". New Economy Handbook. Emerald Publishing Ltd. ISBN 978-0123891723.
^Benjamin Edelman, Michael Ostrovsky, and Michael Schwarz: "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords". American Economic Review 97(1), 2007 pp 242–259.
^Hal R. Varian: "Position Auctions". International Journal of Industrial Organization, 2006, doi:10.1016/j.ijindorg.2006.10.002 .
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