https://gizmodo.com/the-perfect-auction-lets-you-pay-the-second-highest-bid-1741254650
Ever since I took an introductory game theory course in high school, I’ve been interested in auction theory. However, as a STEM major, I found it unlikely that I’d ever encounter the topic again in my classes, so imagine how delighted I was when I heard that we’d be studying these in this class! When I signed up for the course, I imagined only discussions of social networks or online networks such as Facebook or Snapchat, but not that we would go this deeply into game theory.
Vickrey auctions, in theory, are the perfect auction, as the above article claims. Because a person pays the price of the second highest bid, if a person employs game theory correctly, they are always guaranteed to pay less than their valuation of the good, resulting in a positive payoff. In this type of auction, there is a dominant strategy to always bid your valuation of the good regardless of what other people bid. Thus the auctioneer can get a sense of how much the particular good is worth and remove the incentive for buyers to bid lower than their valuation of the good in the hopes that they will pay a lower price.
However, the article points out some flaws with this auction. First, this type of auction is likely to result in dissatisfaction by the seller, as the seller will see that someone was willing to pay the highest bid, but will not be paid the price of the highest bid. Thus the seller would feel like he could have sold the item for a higher price. Also, as the article mentions, this type of auction is vulnerable to collusion by groups of buyers. The buyers could all agree to bid on a lower price and obtain the item for a much lower price than they would have paid if bidding individually.
This article points out some valid flaws with the Vickrey auction. Although it is a fascinating concept, this might explain why it is not seen as much in real life. While the idea is interesting, Vickrey auctions do not seem as practical when it comes to the real world.