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Airbnb, airport security, Al Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, Brownian motion, centralized clearinghouse, clean water, conceptual framework, constrained optimization, continuous double auction, deferred acceptance, Donald Trump, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, helicopter parent, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, Peter Thiel, pets.com, pez dispenser, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, school choice, school vouchers, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uranium enrichment, Vickrey auction, winner-take-all economy
Vickrey’s classic auction study similarly began with a precise explanation of what was wrong with the standard first-price sealed-bid auction that was standard practice in procurement auctions for everything from highways to school supplies, the same mechanism that was used to sell Matsuzaka’s contract. By the time he was done, he’d unwittingly reinvented the stamp collectors’ auction of choice and laid the foundations for the field of auction design in the process. Vickrey described what he thought was a better way: the second-price sealed-bid auction, which is now known simply as a Vickrey auction. Then he proved mathematically that it just might be the best of all possible auctions that one could devise. He changed the auction industry from one that relied on an ad hoc choice of format to one built on design and optimization—a microcosm of economists’ larger role in society. Bidding What You’re Willing to Pay It seems such a small tweak to the way a sealed-bid auction is run: the high bidder pays the runner-up price rather than his own.
This outcome only flips when you put in an offer so low that it drops below the runner-up’s, in which case you miss out on a contract negotiation that you thought was worth $60 million that you could’ve gotten for a mere $30 million. Exactly the same logic applies for any runner-up bid that’s under $60 million. If it had turned out that the Yankees had bid $20 million instead of $30 million, you’re still no better off lowering your bid from the full $60 million the contract was worth to you. The amount you ultimately have to pay drops along with your competitor’s bid, not your own. This is what makes a second-price sealed-bid auction so special: it has the amazing property that, under a wide range of circumstances, the only task confronting a prospective bidder is figuring out how much she’d be willing to pay for whatever is on offer, writing that number on a piece of paper, and sending it in. John Henry doesn’t have to think about what Matsuzaka is worth to any team other than his own (or think about what they think he’s thinking); he just bids whatever he decides the player’s value is to the Red Sox.
Nor has the Vickrey auction seen much action in the sale of state assets, where it matters not just how much revenue is generated but also that the asset—whether an oil concession or wireless spectrum—goes to the bidder who values it the most (because, it is presumed, he will make the most productive use of it). This lack of use of the Vickrey auction was something of a puzzle to economists who were captivated by the way that, in its elegant simplicity, the mechanism helped magically cure the bidders’ headaches over strategizing and overpaying. It turned out that its simplicity wasn’t up to dealing with the messy complications of most real-life auction situations. The second-price sealed-bid approach represented the best of all possible auction designs under the conditions laid out in Vickrey’s 1961 paper, but its many shortcomings under more general conditions were laid bare in a 2006 essay by auction theorists Larry Ausubel and Paul Milgrom. In Ausubel and Milgrom’s words, despite its “theoretical virtues, [the Vickrey auction] also suffers from weaknesses that are often decisive.”13 For instance, there was no collusion in Vickrey’s model and no shill bidding from buyers using multiple identities—strategies familiar to government contractors since time immemorial.
The Armchair Economist: Economics and Everyday Life by Steven E. Landsburg
Albert Einstein, Arthur Eddington, diversified portfolio, first-price auction, German hyperinflation, Golden Gate Park, invisible hand, means of production, price discrimination, profit maximization, Ralph Nader, random walk, Ronald Coase, sealed-bid auction, second-price auction, second-price sealed-bid, statistical model, the scientific method, Unsafe at Any Speed
The most familiar is the common English auction, where bidders offer successively higher prices and drop out until only one remains. There is the Dutch auction, where an auctioneer calls out a very high price and successively lowers it until he receives an offer to buy. There is the first-price sealed bid auction, where each buyer submits a bid in an envelope, all are opened simultaneously, and the high bidder gets the item for the amount of his bid. There is the second-price sealed bid auction, where the high bidder gets the item but pays only the amount of the second-highest bid. There are third-, fourth-, and fifth-price sealed bid auctions. And there are more exotic possibilities. In the Glum Losers auction, the high bidder gets the item for free and everybody else pays the amount of his own bid. The seller can choose among these or any other rules that he manages to dream up.
The answer is yes if there happen to be two high bidders in the audience and no if Cursed Winners and Glum Losers 177 there happens to be just one. Because bidders are unlikely to reveal their bidding strategies in advance of the auction, the seller can never know for certain on any given night whether an English auction is preferable to, say, a Dutch auction. Even to decide between a first-price and a second-price sealed bid auction can be difficult for the seller. On the one hand, in a first-price auction he collects the high bid, while in a second-price auction he collects only the amount of the second-highest bid. On the other hand, bidders generally submit higher bids in a second-price auction. They submit even higher bids in a third-price auction. Which is best for the seller? Again the answer depends on who shows up to bid, and what the bidders' strategies are.
At this point, economic theory makes its entrance, to announce an astonishing truth. Under certain reasonable assumptions (about which I will soon say more), and as a matter of mathematical fact, all of the auction rules I've mentioned yield the same revenue to the seller on average over many auctions. If I regularly sell merchandise at English auctions, while you sell at Dutch auctions, your brother sells at first-price sealed bid auctions, your sister sells at second-price sealed bid auctions, and your crazy Uncle Fester sells at Glum Losers auctions, and if we all sell merchandise of comparable quality, then in the long run we must all do equally well. This result applies as well to a vast number of other auction rules—in fact, to any rule you can imagine that does not involve some entrance fee to the auction hall or its equivalent. I haven't told you how I know that sellers using vastly different rules all do equally well on average, because the argument is technical and I haven't yet figured out how to translate it into simple English.
Affordable Care Act / Obamacare, Airbnb, algorithmic trading, barriers to entry, Berlin Wall, bitcoin, Build a better mousetrap, centralized clearinghouse, computer age, crowdsourcing, deferred acceptance, desegregation, experimental economics, first-price auction, Flash crash, High speed trading, income inequality, Internet of things, invention of agriculture, invisible hand, Jean Tirole, law of one price, Lyft, market clearing, market design, medical residency, obamacare, proxy bid, road to serfdom, school choice, sealed-bid auction, second-price auction, second-price sealed-bid, Silicon Valley, spectrum auction, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, The Wealth of Nations by Adam Smith, two-sided market
Sometimes items are sold instead in “sealed bid” auctions: each bidder submits a bid without hearing the other bids, the bids are all opened at the same time, and the highest bidder wins, sometimes paying the amount of his bid and sometimes paying the amount of the second- highest bid. Paying the second-highest bid may sound odd, until you notice that in an ascending bid auction, the winning bidder pays the price at which the second-highest bidder dropped out. So in both an ascending bid auction and a second-price sealed bid auction, the highest bidder gets the object at the price just beyond what the second-highest bidder was willing to pay. Both of those auction formats make it easy to decide how much to bid, if you know how much the object is worth to you. That’s because if you think of the winning bidder’s profit as what the object is worth to him minus what he has to pay for it (and each losing bidder’s profit as zero), it’s perfectly safe for bidders to bid the object’s full true value to them in a sealed bid auction, or to stay in an ascending bid auction until the auctioneer reaches the full amount they are willing to pay.
That’s because if you think of the winning bidder’s profit as what the object is worth to him minus what he has to pay for it (and each losing bidder’s profit as zero), it’s perfectly safe for bidders to bid the object’s full true value to them in a sealed bid auction, or to stay in an ascending bid auction until the auctioneer reaches the full amount they are willing to pay. Win or lose, a bidder can’t make a higher profit by bidding something else. That isn’t obvious at all, but if you think about it carefully, you’ll see why it’s true. Consider the second-price sealed bid auction, in which the high bidder receives the object and pays the second-highest bid, while the other bidders pay nothing and receive nothing. By bidding less than the object’s true value, a bidder sometimes turns a profitable winning bid into a losing one, and by bidding more than the true value, he sometimes turns a losing bid into an unprofitable winning bid at which he pays more than the object was worth to him.
Website Optimization by Andrew B. King
AltaVista, bounce rate, don't be evil, en.wikipedia.org, Firefox, In Cold Blood by Truman Capote, information retrieval, iterative process, medical malpractice, Network effects, performance metric, search engine result page, second-price auction, second-price sealed-bid, semantic web, Silicon Valley, slashdot, social graph, Steve Jobs, web application
Such larger page groups are sometimes called conversion funnels. These pages need to have information relevant to the incoming keywords and clear calls to action to motivate the visitor to act to fulfill the goal of the campaign. Bids are often called maximum costs per click (or maximum CPCs). The bid you submit for a keyword is the most you will pay to get traffic. PPC programs use a type of auction that is like a second-price sealed bidding system with private values. These types of auctions are difficult to bid successfully because you usually have incomplete information. The Pay-per-Click Work Cycle The rhythm of work on PPC is cyclical, but the amount of effort spent on each part of the cycle changes over the duration of the work. For new PPC campaigns, what takes the most time are keyword generation, grouping, and bidding.
To properly track the success of these types of ads, you will need to track leads over a long period, and then compare the costs of the two types of ads with the sales that resulted. Testing ads is not easy; testing landing pages is even more challenging. Keep in mind that landing page experiments usually take more time. Sometimes, though, if you get lucky, you will find a little change that makes a significant impact on conversion rates. Optimizing Bids PPC programs use an auction that is like a second-price sealed bidding system with private values. This means you do not know how much your competitors are bidding. Everyone has different bids for each keyword. Typically, people overbid in second-price auctions with private values. The larger the number of competing bidders and the more uncertain the value of what is being bid on, the more extreme the overbidding gets. A PPC auction is a little more complicated than a second-price auction because multiple positions are being bid on simultaneously and Quality Score factors affect rankings.
Albert Einstein, barriers to entry, Berlin Wall, collective bargaining, congestion charging, Corn Laws, David Ricardo: comparative advantage, decarbonisation, Deng Xiaoping, Fall of the Berlin Wall, George Akerlof, invention of movable type, John Nash: game theory, John von Neumann, market design, Martin Wolf, moral hazard, new economy, price discrimination, Productivity paradox, race to the bottom, random walk, rent-seeking, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, second-price sealed-bid, Shenzhen was a fishing village, special economic zone, spectrum auction, The Market for Lemons, Thomas Malthus, trade liberalization, Vickrey auction
The New Zealand government, which auctioned radio spec- trum as early as 1990 with advice from some economists who • 163 • T H E U N D E R C O V E R E C O N O M I S T seemed to have a slender grasp on reality, learned such lessons the hard way. The auctions were held without making sure that there was any interest from bidders, without minimum prices, and using a theoretical curiosity called a “Vickrey auction,” which led to considerable embarrassment. (The auction was named after its inventor, Nobel laureate William Vickrey, who made major early advances in applying game theory to auctions.) The Vickrey auction is a second-price sealed-bid auction. The “sealed bid” means that each bidder writes down a single bid and seals it in an envelope. When the envelopes are opened, the highest bidder wins. “Second-price” is the curious rule that the winner pays not his bid but that of the second-highest bidder. The elegant reasoning behind this auction is that no bidder ever has an incentive to shave his bid in an effort to make more profit; making a lower bid affects his chance of winning but not the price.
AltaVista, barriers to entry, Black Swan, bounce rate, business intelligence, butterfly effect, call centre, Claude Shannon: information theory, complexity theory, correlation does not imply causation, en.wikipedia.org, first-price auction, information retrieval, inventory management, life extension, linear programming, megacity, Nash equilibrium, Network effects, PageRank, place-making, price mechanism, psychological pricing, random walk, Schrödinger's Cat, sealed-bid auction, search engine result page, second-price auction, second-price sealed-bid, sentiment analysis, social web, software as a service, stochastic process, telemarketer, the market place, The Present Situation in Quantum Mechanics, the scientific method, The Wisdom of Crowds, Vickrey auction, yield management
In sponsored-search auctions, you can also avoid the winner’s curse by leveraging empirical data from your account or data from similar accounts. However, if the auction is in equilibrium, there is no winner’s curse because the bidders account for this effect in their own bids and adjust accordingly. Therefore, each bid represents the true valuation of the resources by the buyer. The pure Vickrey auction deals with auctions where a single good is being sold (i.e., a second-price sealed-bid auction). When multiple identical resources are for sale, things get more complex, and one can apply the same payment principal (i.e., have all winning bidders pay the amount of the highest nonwinning bid). This is known as a uniform price auction. Unfortunately, this situation does not result in bidders bidding their true valuations in most situations, and the auction does not reach stability.