Economics 136

Auctions and Market Design

Professor Paul Milgrom

Winter 2005

This is a new undergraduate class on auctions and market design, tailored to students who are comfortable with mathematics, including elementary probability theory, and have studied game theory. Evidence of the last is completion of economics 160. Class meets Monday and Wednesday afternoons, from 1:15 to 3:05 in Room 160-315. This first version of the class will be largely based on readings from my new book, Putting Auction Theory to Work (Cambridge University Press, 2004).

Market design, encompassing auction theory and matching theory, has been the most successful area of research in applied game theory over the past twenty five years. The founder of auction theory, William Vickrey, was awarded a Nobel Prize in economics in 1996 and there have been successful applications of auction theory in designing radio spectrum auctions and electricity markets worldwide. Academic contributors to auction theory are contributing to still more new designs, particularly for electronic markets. In addition, a body of empirical auction research has emerged that builds on the theoretical research.

There will probably be four problem sets, plus a midterm and final exam. These will be weighted 40%, 20%, and 40% respectively to determine the course grade.

Because this material is being taught to Stanford undergraduates for the first time, the schedule, shown below, is more tentative than usual.

Date	Topic	Assignment
Jan 5	Introduction, basics	Reach: ch1. Strategic equivalence. Solving some auctions
10	Vickrey auctions	Read: ch 2
12	Envelope Theorem	Read: ch 3, pp 64-75.
17	Martin Luther King Day	No class.
19	Revenue equivalence	Read: ch 3. First homework due.
24	-Optimal Auctions	Ch 3, continued
26	-Related Applications	Ch 3, continued
31	Single crossing	Read: ch 4, pp 98-110. Second homework due.
Feb 2	Verifying Equilibrium	Read: ch 4, pp 110-119.
7	Midterm examination
9	“Ad Words” auctions	No reading.
14	Revenue comparison.	Read ch 4, pp 119-125, 132-140.
16	The effects of entry	Ch 6: pp 208-233.
21	President’s Day.	No class.
23	Drainage Tract Model	Read: ch 5, pp 166-181.
28	Multi-item auctions	Read: ch 7, pp 251-294. Third homework due.
Mar 2
7	Package auctions	Read: ch 8, pp 296-335.
9		Fourth homework due.
14	Final Exam	Time: 8:30-11:30am, Room 160-315