On Norwegian Fish Auctions
When fishermen in Norway wish to sell their catch, they must do so through auctions organised by sales organisations. One of these auctions is the Norwegian Fishermen’s Sales Organisation for Pelagic Fish, a sealed bid auction in which the seller must accept the highest bid. Another is the so-called Triple auction which specialises in demersal fish. It is an English, or ascending, auction that runs for a few hours every day.
According to the Revenue Equivalence Theorem (RET) formulated by Nobel Laureate, William Vickrey, in 1961, there should be no difference in revenue for a seller when choosing between the two forms of auctions. However, RET is bound by a number of assumptions which might not be valid in the context of the Norwegian fish market.
For example, RET assumes that bidders have independent private values for the item being sold. In the context of fish auctions however, the bidders’ may have affiliated values. This means that one bidder believing the fish to be worth a higher price maybe influence the others and drive up the prices. This extra information means that bidders worry less about overestimating the common value of the fish (if for example it is intended for processing and resale) which leads to more aggressive bidding. This would make the English auction more attractive to sellers because their fish will fetch higher prices.
For more considerations on the application of auction theory to — and a fascinating glimpse into the world of — Norwegian fish auctions see: “Why Fish Auctions Differ – Theory and Practise” (2001) by Claire W. Armstrong. http://oregonstate.edu/dept/iifet/2000/papers/armstrong.pdf