THE UNIVERSITY OF CHICAGO

Economics 20800
Theory of Auctions
P. Reny
422 SHFE
Office Hours: By appointment

T.A.: Mohammad Moravvej (moravvej@uchicago.edu

This course is intended to introduce you to various topics in auction theory. There is no textbook
for this course. There will be a midterm exam (5:30-6:20pm, Thursday Feb. 6, SHFE 103) and a
final exam (Date TBA), each worth 50% of your grade. Exercises will be assigned from time to
time during class. It is in your interest to complete the exercises, even though they will not be
collected or graded. Solutions to will be covered in the TA sessions. The readings below are
optional in the sense that you will not be tested on material that is not covered in class. In addition,
the readings are quite difficult; so do not get discouraged if you find them so. My hope is that this
course will help in making this interesting topic accessible to you.

TOPICS

1. The standard auctions and their equilibria.

(i) First-price
(ii) Second-price
(iii) Dutch
(iv) Ascending
2. Other auctions
(i) First-price all-pay
(ii) Second-price all-pay
3. The revenue-equivalence theorem
4. Revenue-maximizing auctions
5. Interdependent-values
(i) Information revelation
(ii) Revenue results
6. Limit theorems
(i) Efficiency of auctions
(ii) Information aggregation
7. Multi-unit auctions
(i) Pay-your-bid
(ii) Uniform-price
(iii) Vickrey
(iv) Generalized Vickrey

1
OPTIONAL READINGS (These can be found online at JSTOR.) The papers are listed in the
order that their content is most likely to appear in class.

Milgrom, Paul: "Auctions and Bidding: A Primer," Journal of Economic Perspectives, 1989, 3, 3-22.

McAfee, P. and J. McMillian: "Auctions and Bidding, " Journal of Economic Literature, 1987, 25, 699-
738.

Bulow, J. and J. Roberts: "The Simple Economics of Optimal Auctions," Journal of Political Economy,
1989, 97, 1060-1090.

Milgrom, P.: "Auction Theory," In Advances in Economic Theory: Fifth World Congress, edited by T.
Bewley. 1987. Cambridge, U.K.: Cambridge University Press.

Riley, J. and W. Samuelson: "Optimal Auctions," American Economic Review, 1981, 71, 381-392.

Myerson, R.: "Optimal Auction Design," Mathematics of Operation Research, 1981, 6, 58-73.

Maskin, E. and J. Riley: "Optimal Auctions with Risk Averse Buyers," Econometrica, 1984, 52, 1473-
1518.

Milgrom, Paul and R. Weber: "A Theory of Auctions and Competitive Bidding," Econometrica, 1982, 50,
1089-1122.

Hendricks, K. and H. Paarsch: "A Survey of Recent Empirical Work Concerning Auctions," Canadian
Journal of Economics, 1995, 28, 403-426.

Porter, R.: "The Role of Information in U.S. Offshore Oil and Gas Lease Auctions," Econometrica, 1995,
63, 1-27.

Satterthwaite, M.A. and S. Williams: "Bilateral Trade with the Sealed Bid k-Double Auction: Existence
and Efficiency," Journal of Economic Theory, 1989, 48, 107-133.

Vickrey, W.: "Counterspeculation, Auctions, and Competitive Sealed Tenders," Journal of Finance,
1961, 16, 8-37.

Perry, M. and P. Reny: “An Efficient Auction,” Econometrica, 2002, 70, 1199-1212.