Auction Models

Econometrics: Legal, Practical, and Technical Issues

When applying for a mortgage, selecting a bottle of Bordeaux, or giving roses for a special occasion, one indirectly participates in an auction. Prices of treasury bills, wine futures, and wholesale flowers are all set at auction. Like traditional market mechanisms, auctions allocate goods to buyers who are willing to pay the most for them. However, unlike traditional markets, in which slight price adjustments are usually met by commensurately small changes in sales, the winner-take-all nature of auctions can amplify the consequences of mergers and cartels. Given their economic ubiquity and sensitivity to firm strategy, the close scrutiny of auction markets by antitrust regulators is understandable.

The purpose of this paper is to review the relatively young empirical literature on auctions that is especially relevant to issues that arise in antitrust cases.