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Comparison of Second Price and Random nth Price Auctions

https://www.researchgate.net/publication/258113433_Comparison_of_Vickrey_Second-Price_and_Random_nth-Price_Auctions_for_Analyzing_Country_of_Origin_Labeling_in_Taiwan

This paper discusses the difference between second and nth price auctions by taking a case study using tea. The study auctions tea with different label pricings on them with the labels coming from premium brands in Taiwan or others in China or Vietnam. The paper states that is traditionally known that second price auctions often merits higher or non-sincere biddings for items because bidders know that they do not pay the price of their bid. However the paper states that through auctions for these branded teas, they found that for random “nth” price auctions, or auctions in which the winner pays the “nth” person’s bid between 2 to k, bidders tend to bid more sincerely.

This is an anomaly; in class we learned that in a second price auction, bidders should always bid their truthful bid. In the paper however, the author claims that it is common knowledge that people bid above their truthful evaluation for an item quite commonly. We know even that for a third price auction, it might even sometimes be the dominant strategy for a bidder to bid above their true evaluation for an item in hopes that they can win the auction without having to pay their true evaluation or more than that price. It is thus odd to find that in practice, different priced auctions seem to vary from the theory of what we know in dominant strategies in regards to auctions.

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