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A Theory of Auctions and Competitive Bidding

Paul R. Milgrom
Robert J. Weber

Abstract

A model of competitive bidding is developed in which the winning bidder's payoff may depend upon his personal preferences, the preferences of others, and the intrinsic qualities of the object being sold. In this model, the English (ascending) auction generates higher average prices than does the second-price auction. Also, when bidders are risk-neutral, the second-price auction generates higher average prices than the Dutch and first-price auctions. In all of these auctions, the seller can raise the expected price by adopting a policy of providing expert appraisals of the quality of the objects he sells.