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How (Not) to make money

How (Not) to make money. Econ 488a Yoonsuk Chay Jeongseok Yu. Introduction. Paper written by Jacob K. Goeree on Charity Auction Argument: Standard winner-pay auctions are inefficient Problems with Vickery auction -Free-rider problem / suppression of bid. Vickery Auction.

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How (Not) to make money

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  1. How (Not) to make money Econ 488a Yoonsuk Chay Jeongseok Yu

  2. Introduction • Paper written by Jacob K. Goeree on Charity Auction • Argument: Standard winner-pay auctions are inefficient • Problems with Vickery auction -Free-rider problem / suppression of bid

  3. Vickery Auction

  4. All pay auction with reserve price

  5. Methods • Individual value uniformly distributed from 0 to 100. • Return rate depends on # of participants ex) 20 participants : rate < 5%. We chose 3.75%, 1.25% • Determining the entry fee and reserve price for All pay auction. • Given n = # of participants, and a = return rate • Reserve price: r = • Entry fee = • When n= 20, 15, 10, reserve price = entry fee = 0. • When n = 5 & a = 15%, then r = 3.7, entry = 4.4 • Run standard Vickrey auction & All pay auction.

  6. Analysis • Real life Fund Raising Charity Auctions • Big Assumption - everyone has to participate • Without information on N, the participants have no definite information about the entry price/ reserve price -R price = .5n / (1- a) -Entry fee = ar(n-1)2 / 2(1-na)

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