Auctioning Böhm-Bawerk's horses

Abstract

Auctions are a unique allocating device of great practical importance. They present situations that cannot easily be fit into the neat taxonomy of Neoclassical Economic Analysis. For instance, textbook theory tells us that a market with one seller and many buyers is a monopolistic market structure. But what if the seller is passive as he is in the Auction? Does this situation still qualify as a monopolistic situation with all of the typical connotations that that term implies? Obviously not. In addition, our textbooks tell us that price discrimination is the result of the profit maximizing behavior of monopolies. However, we have seen that buyers in a competitive bidding process can very naturally discriminate the price of the good they are bidding for on their own. Is a single price for a homogeneous good then still evidence of a “competitive” process? These questions and several others were raised in this paper and, I hope, dealt with in a satisfactory manner. The point that must be stressed, however, is that the auctioning process is an extremeley complex subject, and in light of its empirical significance, must be met with far more analysis than economists have offered in the past.