Dictionary :: Auctions

Glossary of game theory terms.

Second Price Auction

An auction in which the bidder who submitted the highest bid is awarded the object being sold and pays a price equal to the second highest amount bid. Alternately, in a procurement auction, the winner is the bidder who submits the lowest bid, and is paid an amount equal to the next lowest submitted bid. In practice, second-price auctions are either sealed-bid, in which bidders submit bids simultaneously, or English auctions, in which bidders continue to raise each other's bids until only one bidder remains. The theoretical nicety of second price auctions, first pointed out by William Vickrey, is that bidding one's true value is a dominant strategy. Alternately, first price auctions also award the object to the highest bidder, but the payment is equal to the amount bid.

updated: 12 August 2005