Oliver Kirchkamp

Auction Theory (Winter 2022/23)

In this module, we explore quantitative and mathematical methods of economic theory. We develop a framework to analyse and design transparent and competitive mechanisms for allocating goods, services, or resources. Such a framework can help designing fair and efficient mechanisms for resource allocation and conservation. While we concentrate on the theoretical properties of these mechanisms, understanding these properties is necessary to understand environmental markets and trading, e.g. emissions trading systems or renewable energy certificate markets. The mechanisms could be used to encourage renewable energy deployment, to contribute to sustainable energy transitions, to manage resources in a sustainable way and to ensure fair access to resources.

Audience:

The lecture is targeted at advanced master's students.
Students should be familiar with Game Theory, Calculus and Probability.

Motivation:

Auctions belong to the oldest and perhaps most robust economic institutions. Today, auctions control the allocation of carbon emmissions, the provision and the distribution of green as well as not so green energy, transport services, communication licences, etc. Auctions help us to understand how prices for these and other goods are determined and how information is aggregated with the help of decentral institutions. For theorists and for experimental economists alike, auctions provide a crucial framework to study economic behaviour.

Topics:

Standard types of auctions, efficiency and revenue in the case of private values, risk aversion, experimental evidence, auctions with interdependent valuations, winner's curse, common values.

Online-teaching:

The module will be offered online.

This course covers a more technical topic. For this course, the online format offers learning benefits that are absent in a traditional lecture room. Online videos allow you to learn at your own pace. You can (and you should) pause, slow down, or fast forward according to your individual learning speed. Weekly online homework assignments provide regular feedback and help you to engage with the material. Online discussions and exercises provide and enhance interaction.

Consequently, the online format offers a significantly better learning experience and more opportunities to interact. For this course, students are demonstrably more successful with online teaching than students with traditional teaching. In the past, with traditional classroom teaching, approximately 25% of the students failed the course. Now, with online teaching, fewer than 5% of the students fail.

Lecture + Exercises:

Throughout the term, you will receive a new set of videos each week. You can choose when (and how) you watch these videos. These videos will remain available until the end of the term. I recommend that you establish a routine: watch the weekly videos on the same day and at the same time every week. Each week, you will also complete a short homework assignment.

Weekly Digital Homework:

Each week, you will submit a short homework assignment via Moodle. Although different students will work on different problems, discussing your homework within your study group will be beneficial. Use the discussion board in Moodle to ask questions and to keep in touch with the other course members.

You can obtain one-third of the total points (140 points) with the homework.

At the end of the term, you will find extra (optional) problem sets in Moodle. These extra problem sets are similar in style to the exam. You may attempt these problem sets as often as you wish. For each attempt, you will receive a new collection of problems. When you submit your answers to these extra questions, you will receive immediate feedback and some comments. You can use these extra questions to become more accustomed to the exam. Points scored with these extra questions do not contribute to your final grade.

Digital Exam:

You can obtain up to two-thirds of the total points (280 points) in the digital exam (on Moodle) on 12.03.2027. The style of the questions in the digital exam on 12.03.2027, will be similar to the questions in the weekly homework. If you have a reliable internet connection, you can write the digital exam from home. If you prefer to write at FSU Jena and require a room, please let us know.
The sum of the points from the digital homework and the digital exam (up to 420 points) determines your grade.
Date of the digital exam: 12.03.2027 (on Moodle).
Resit of the digital exam: 20.04.2027 (on Moodle).
Students who wish to take the resit of the digital exam must register in time with the examination office.
Instructions for the Digital Exam
If you wish to obtain credits for the course, please do not forget to register for the exam!

Discussion Board and Online Meeting:

Use the discussion board in Moodle to ask questions and to discuss issues related to the lecture. I will endeavour to answer your questions as soon as possible, usually within one working day.

The access code for the online meeting can be found in Moodle. I recommend that, before joining the meeting, you watch the videos and attempt to solve the homework. Please arrive on time, and if possible, activate your camera. I do not plan to introduce new material in the discussion board or during the online meeting.

Prerequisites:

Game theory (e.g. as covered in BW24.2), Calculus, Probability.

Outline:

Topic	Lecture/Exercise
1. Introduction.	19.10.2026 - 25.10.2026
2. Terminology and definitions.	26.10.2026 - 01.11.2026
3. Equilibrium concepts.	02.11.2026 - 08.11.2026
4. Symmetric private values.	09.11.2026 - 15.11.2026
5. Revision: Random variables.	16.11.2026 - 22.11.2026
6. Revision: Jointly distributed random variables.	23.11.2026 - 29.11.2026
7. Order Statistics.	30.11.2026 - 06.12.2026
8. Bidding equilibria in the first-price auction.	07.12.2026 - 13.12.2026
9. Reserve prices.	14.12.2026 - 03.01.2027
10. Entry fees.	04.01.2027 - 10.01.2027
11. Revenue equivalence.	11.01.2027 - 17.01.2027
12. Risk aversion.	18.01.2027 - 24.01.2027
13. Interdependent values.	25.01.2027 - 31.01.2027
14. Summary, exercises, discussion board.	01.02.2027 - 07.02.2027
15. Summary, exercises, discussion board, Q+A.	08.02.2027 - 14.02.2027

Literature:

Krishna, Vijay, 2009. Auction Theory, Academic Press (this is the main text for this course).
Choi, Pak-Sing, Muñoz-García, Félix, 2025. Auction Theory: Introductory Exercises with Answer Keys. Cham: Springer Nature Switzerland.
Cassidy R., 1967. Auctions and Auctioneering, Berkeley: University of California press.
Kagel, J. H., 1995. Auctions: A Survey of Experimental Research, in The Handbook of Experimental Economics, J. H. Kagel and A. E. Roth (eds). Princeton: Princeton University Press.
Kagel, J. H. and D. Levin, 2002. Bidding in Common Value Auctions: A Survey of Experimental Research, in Common-Value Auctions and the Winner's Curse, Princeton University Press.
Klemperer P., (Ed.), 2000. The Economic Theory of Auctions, Edward Elgar Publishing.
Klemperer, P., 1999. Auction Theory: A guide to the Literature, Journal of Economic Surveys, 13: 227-260. CEPR
Klemperer, P., 2000. Why every economist should learn some auction theory. invited paper from the Econometric Society World Congress. CEPR
McAfee, R.P., and J. McMillan, 1987. "Auctions and Bidding," Journal of Economic Literature, 25:699-738. Jstor
Wilson, R., 1992. "Strategic Analysis of Auctions," in R.J. Aumann and S. Hart, Handbook of Game Theory with Economic Applications, Vol. 1. Amsterdam: Elsevier Science Publishers. Paper

FAQ:

Please send feedback and questions to oliver.kirchkamp@uni-jena.de.