Economics of auctions; principles, theory and practice

In this master’s theses I will take a look at the interesting world of auctions. The first part of my theses will take a look at the auction theory in general and will introduce the principles and the basic concepts. I will be explaining the common terms that are used in the related literature in a deeper way and focus also to the facts behind them. In the second part, I will focus on the classical paper by Riley and Samuelson (1981) called Optimal Auctions, where they e.g. show how the theory of revenue indifference can be proven when certain assumptions hold. This paper can be considered important to the economic theory in general and proves a claim made by William Vicrey in the early 1960’s that auctions, which seems to be very different to another yield the same expected revenue to the auctioneer when certain assumptions hold. So the proof of this revenue equivalence theorem can be considered the most central output of this paper. In the third and last part I will take a more practical approach and take a look at a paper by Klemperer called What really matters in auction design (2002) where he is handling auctions in a more convenient way. In this part I will go thru Klemperer’s paper and will be explaining what he has considered to be important in auction design when we move from theoretical models to practice. For example, I will be going thru some examples of how auctions might turn out to be if proper theorists are not consulted when designing them