Muscle Car Auction
http://www.nytimes.com/2014/09/21/automobiles/seized-and-sold-the-marshal-holds-a-muscle-car-auction.html
This week, the United States Marshal Service auctioned off 9 rare muscle cars in a classic English auction. In an English auction, or an ascending bid auction, potential buyers raise the offered price until nobody is willing to offer more than the previous bid, at which point the previous bidder will pay his offer and receive his item. An alternative to the English auction is the Dutch auction, or decreasing bid auction, in which the auctioneer offers to sell the item for a ridiculous price, then gradually lowering the price until somebody decides that the item is worth the currently offered price.
In an English auction, it is a dominant strategy to stay in until the bid reaches your personal value of the item, or the value that you would be willing to pay to own the item. In a Dutch auction, the dominant strategy is to wait until your value is reached. For one Mr. Albaugh, who came to the auction hoping to purchase a Rallye Green Nova, that value was $400,000. At this auction, he managed to purchase the car for that amount, but at a previous auction at which he had tried to purchase the same car, it sold for $580,000 and he elected to stop bidding.
If all bidders played like Mr. Albaugh and followed their dominant strategy, both the English auction and the Dutch auction would result in the same end sale price for the item. Since nobody was willing to pay more than $400,000, Mr. Albaugh would’ve been able to purchase the car for that amount in either auction type. However, it is common for less experienced bidders to pay more than they intended in either scenario. In an English auction, many bidders get caught up in the excitement and competition, and end up bidding far more than their personal value. If nobody then outbids them, they have a net loss, as they have paid more than they have obtained. On the other hand, in a Dutch auction, nervous bidders scared of waiting too long and losing out on the item end up offering more than their value, again experiencing a net loss.