What is auction?

An auction sells something by collecting bids under fixed rules, so the price comes from competition rather than from a seller's guess. It matters because the rules decide how much bidders reveal and how much the seller earns.

How it works

Common formats differ in who pays what. In an ascending auction, bids rise until one bidder remains, and the winner pays the last bid. In a sealed first-price auction, everyone bids once and the highest bid wins and pays that amount. In a second-price auction, the highest bidder wins but pays the second-highest bid.

The format changes bidding behavior. In a first-price auction, bidders shade their bids below their true value to keep some profit, so they must guess what others will do. In a second-price auction, bidding your true value is the best strategy, because your own bid does not set what you pay. A seller compares formats by expected revenue.

Example

Say three bidders value an item at 100, 80 and 60. In an ascending auction, bidding stops at about 80, when the second bidder drops out, and the top bidder pays about 80 and gains 20. In a second-price sealed auction, each bids their value, the top bidder wins and pays 80. In a first-price auction, the top bidder might bid 85 to stay safe, paying 85. The values are an illustration.

How to model it in Machinations

Create a Source that generates bidders' valuations, using a random value drawn each Play, and a Register that finds the highest and second-highest. Use a Lever for the auction format and a Register that sets the price from it. Add a Pool for seller revenue. Play many times at once and chart the revenue Pool to compare the spread of results across formats.