[Gnso-newgtld-wg] Vickey auctions

[Austin, Donna]

Kathy

The Vickrey auction model may be inherently expedient, but I’m still not convinced that it is inherently fair particularly among players large and small. I’m interested to understand how you think this is the very best way to ensure that smaller parties can prevail from time to time and that the Global South can obtain a share of new gTLDs.

Donna

From: Gnso-newgtld-wg [mailto:gnso-newgtld-wg-bounces at icann.org] On Behalf Of Kathy Kleiman
Sent: Monday, July 06, 2020 7:30 AM
To: gnso-newgtld-wg at icann.org
Subject: [Gnso-newgtld-wg] Vickey auctions

Hi All,
For days and months we discussed auctions and ways to improve them. One thing we learned is that Vickrey auctions are inherently fair.  They provide a process that encourages bidders to bid the price that is fair to them -- and set out exactly what they are willing to pay. They avoid collusion and unfair dealing. I thought we had agreed to recommend this method -- a sealed bid at the time of application.

I want to reintroduce some of what we learned about Vickrey Auctions in our long discussions -- and why they are a trusted method of auctions among players large and small and with an array of resources.  I think it is the very best way to ensure that smaller parties can prevail from time to time, and that the Global South can obtain a share of new gTLDs.

Best, Kathy
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What is a Vickrey Auction?

https://urldefense.com/v3/__https://corporatefinanceinstitute.com/resources/knowledge/other/vickrey-auction/__;!!N14HnBHF!vJja-W-kqNz7QD8buSJk3Ao175jlntJS9eqo_wFFxM7J7eugO5UDcA0eJmCMUb8G0oF9mA$ <https://urldefense.com/v3/__https:/corporatefinanceinstitute.com/resources/knowledge/other/vickrey-auction/__;!!N14HnBHF!owM79hXrIldCESZnBUdA6FpA7CuFv2fr6Q6QHzhAgMoYrXoCxFqRe6V5LVNMOZQ2c9sc$>

A Vickrey auction is a sealed-bid auction where bidders submit bids without knowing the bids of other people. However, as opposed to other sealed-bid auctions, the price paid is the second-highest bid price and not the winning bid price. The Vickrey auction was named after William Vickrey, a Canadian who won the 1996 Nobel Prize in Economics for his research on asymmetric information<https://urldefense.com/v3/__https:/corporatefinanceinstitute.com/resources/knowledge/finance/asymmetric-information/__;!!N14HnBHF!owM79hXrIldCESZnBUdA6FpA7CuFv2fr6Q6QHzhAgMoYrXoCxFqRe6V5LVNMOdllQwyz$> in economics.

Understanding a Vickrey Auction

In a Vickrey auction, the individual is bidding their true value and are not trying to assess what everyone else is going to bid. Therefore, in a Vickrey auction, the individual is bidding the maximum amount they are willing to pay and are not disadvantaged by it.

By utilizing the second-price mechanism<https://urldefense.com/v3/__https:/www.researchgate.net/publication/228296863_How_Good_is_the_Generalized_Second-Price_Mechanism__;!!N14HnBHF!owM79hXrIldCESZnBUdA6FpA7CuFv2fr6Q6QHzhAgMoYrXoCxFqRe6V5LVNMOS7ZLYJt$> in a Vickrey auction, individuals bid truthfully – individuals are motivated to bid their maximum value because the individual understands that if their bid wins, they will only need to pay the second-highest bid value.



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