Auction
Named by 2 essays across one field — each of them below, with the objects they name alongside it.
Also named here as private information, revenue equivalence — the same set of essays touches all of them, so they are one junction rather than several.
Two auctions that earn the same
In one sealed-bid auction the winner pays its own bid; in the other it pays the second-highest bid. Bidders behave completely differently — in the second they bid what the object is worth to them, in the first they shade their bids down by exactly a fraction — and the seller's revenue is spread differently. Yet the seller expects to collect precisely the same amount, (n − 1)/(n + 1) for n bidders with values spread evenly, and so does an auction in which everybody pays. The equality breaks the moment bidders dislike risk, and it says nothing about how much a reserve price can add.
Some good trades cannot be made
A seller who values a car at s meets a buyer who values it at b, and neither knows the other's number. Whenever b is larger, a sale would make both better off. Myerson and Satterthwaite proved in 1983 that no way of haggling, auctioning or brokering can guarantee it: some sales worth making are always lost. With values spread evenly the best possible procedure trades only when the buyer's value beats the seller's by a quarter, loses five thirty-seconds of the surplus — and is reached by two people who simply name prices and split the difference.
Named alongside it
The objects these essays reach for when they reach for this one.
ExpectationNash equilibriumPrivate informationRevenue equivalenceBargainingOrder statisticsRisk aversionStrategy-proofness