Auctions and Market Design

Professor Peter Cramton
University of Maryland

Professor Dirk Bergemann
Yale University 

Simon Brandkamp
University of Cologne

[40min intro talkWilson talk]

This is the webpage for my course on Auctions and Market Design co-taught with Dirk Bergemann through 2022; the course is no longer offered. It also includes four lectures from the course, Economic Engineering, which I co-taught with Axel Ockenfels and Alex Westkamp through 2022. Students were encouraged to take both courses for a broad introduction to Market Design.

Auctions and Market Design and the first part of Economic Engineering used the flipped-classroom model. Before class students viewed two lectures for the dayroughly 4.8 hours of material. The lectures are available on YouTube from the links below. Viewing occurred whenever the student wanted and at any playback speed. As students watched or after, they would write down three questions to bring to class. The best questions target broad ideas and research directions rather than some narrow element. For example, the question “I don’t understand how you got from line 3 to line 4 when you changed the order of integration” is better answered with a Google search “wiki order of integration“. A good question helped the student understand market design research.

The purpose of the discussion sessions was to apply the lectures to real-world problems. Together we got a glimpse of the market design process in many exciting settings.

The discussion sessions were in person, except during the COVID years, 2020-21. Real-time (1:30-4 pm) attendance was expected. To facilitate discussion, we sometimes called on students to ask one of their questions. This format made sessions more active and engaging than the lectures alone. Students had to work a bit harder, but we believe they learned more.


Description [Requisites, Exercises, Grading]

Market design combines auction and matching theory with behavioral and experimental economics to design innovative markets to better meet goals. Applications are seen in almost all markets and government programs that assign and sometimes price scarce resources. Market design research leads to a better understand­ing of the incentives that guide behavior. Applications include matching students to schools, interns to hospitals, and kidneys to patients. In settings where prices are used to motivate behavior, auction markets are developed to assign and price scarce resources. Applications include markets in mobile communications, electricity, financial securities, transportation, and emissions.

Market design takes as given that participants interact in the market to maximize their objectives given the market rules. The question we ask is, “Are the market rules best-suited to the market’s objectives, or can they be improved?” This is an important and practical question. In nearly all cases, market rules can be improved, and often the improvements can transform entire industries for the better.


Congratulations to Paul Milgrom and Robert Wilson, two auction theorists and market designers, who received the 2020 Nobel Prize in economics “for improvements to auction theory and inventions of new auction formats.” [Scientific background] This course has benefited tremendously from the contributions of Robert Wilson and Paul Milgrom to auctions and market design.

Lectures from 2020 are posted on YouTube at the links below. A handy feature is being able to adjust the playback speed. Depending on your familiarity and interest in the material, you may want to increase the speed from normal to a faster speed. Click on the setup icon at the bottom right of the YouTube window and select Playback speed. YouTube uses algorithms to retain the original pitch at any speed.

Economic Engineering Lectures [Cramton slides]

Lecture 1: Introduction to market design [2h27m] View before Monday, 19 Sep 2022

Lecture 2: Auctions and bargaining [2h21m] View before Monday, 19 Sep 2022

Lecture 3: Mechanism design [2h19m] View before Tuesday, 20 Sep 2022

Lecture 4: Market design applications [2h20m] View before Tuesday, 20 Sep 2022

Auctions and Market Design Lectures
[Slides: CramtonBergemann]

Lecture 1: Introduction to auctions and market design, Peter Cramton [2h23m] View before Monday, 26 Sep 2022

Our first lecture presents an introduction to auctions and market design. Chen, Cramton, Ockenfels, and List (2020) presents a survey of recent work. For discussion of market design, see Roth (200220152018). For the initial paper on matching, see Gale and Shapley (1962). For matching with contracts, see Hatfield and Milgrom (2005), which nicely connects main results in auctions and matching. Bichler (2017) presents a nice introduction to market design from a linear programming perspective. Good textbooks on game theory are Fudenberg and Tirole (1991), Gibbons (1992), and Osborne and Rubinstein (1994). More recent work on algorithmic game theory is in Nisan, Roughgarden, Tardos, and Vazirani (2008). Parkes and Seuken (2021) is the first textbook on economics and computation. For textbooks on optimization, see Nocedal and Wright (2006) and Kochenderfer and Wheeler (2019).

Lecture 2: Auctions and bargaining, Peter Cramton [2h11m] View before Monday, 26 Sep 2022

McAfee (2017) covers the standard auctions in a fun 14-minute video. McAfee and McMillan (1987) is the seminal survey on auctioning a single item. Krishna (2009) provides an excellent treatment of auction theory. Vickrey (1961) is a pathbreaking paper on auctions, focusing on private values. Wilson (19671969) introduces common value auctions. Milgrom and Weber (1982) generalize auction theory to affiliated values. Akbarpour and Li (2020) provide a nice rationale for some of the standard auctions. Cramton (1998) provides reasons ascending auctions perform well. Bergemann, Breuer, Cramton, and Ockenfels (2021) explore how a soft reserve price can capture the benefits of both ascending and sealed-bid auctions.

Lecture 3: Mechanism design, Peter Cramton [2h21m] View before Tuesday, 27 Sep 2022

The seminal paper is Myerson (1981). Borgers (2015) provides an excellent treatment of mechanism design. Vohra (2011) presents mechanism design from a linear programming perspective. Hartline and Lucier (2015) and Camara, Hartline, and Johnsen (2020) focus on algorithmic approaches that work well in a variety of environments.

Lecture 4: Auctioning many similar items, Peter Cramton [2h19m] View before Tuesday, 27 Sep 2022

Much of the material is in Ausubel, Cramton, Pycia, Rostek, and Weretka (2014). Ausubel and Cramton (2004) present the Vickrey auction with reserve pricing. Ausubel and Cramton (2001) discuss revenue-maximizing auctions with resale.

Lecture 5: Spectrum auctions and communications, Peter Cramton [2h21m] View before Wednesday, 28 Sep 2022

Coase (1959) is the first paper arguing for spectrum auctions. His testimony before Congress is wonderful; Cramton (2012) provides another example of Congressional testimony but on Medicare auctions. For an excellent discussion of spectrum auctions, see Milgrom (2004). Cramton, Shoham, and Steinberg (2006) cover combinatorial auctions. Cramton (2013) and Day and Cramton (2012) covers much of the material here. On bid signaling, see Cramton and Schwartz (2000). Cramton and Ockenfels (2017) provide a more recent treatment focusing on the German auctions.  Open access wireless markets are presented in Cramton and Doyle (2017). Harchol et al. (2020) presents a similar idea for the internet backbone.

Lecture 6: Electricity market design and climate policy, Peter Cramton [2h21m] View before Wednesday, 28 Sep 2022

Electricity market design is discussed in Cramton (2017). The electricity transition is studied in Cramton, Bobbio, Malec, and Sujarittanonta (2020). Learning from market failures is essential in market design; Cramton (2021) (32-minute talk) discusses lessons from the 2021 electricity crisis. Climate policy is discussed in Cramton, MacKay, Ockenfels, and Stoft (2017) and MacKay, Cramton, Ockenfels, and Stoft (2015). Foundational research on engineering trust is presented in Bolton, Greiner, and Ockenfels (2013).

Lecture 7: Transportation and finance, Peter Cramton [2h29m] View before Wednesday, 28 Sep 2022

Transportation is discussed in Cramton, Geddes, and Ockenfels (2017). The arms race for speed is studied in Budish, Cramton, and Shim (2015). Flow trading is explored in Budish, Cramton, Kyle, Lee, and Malec (2021). Rostek and Yoon (2020) provide an excellent survey of financial market models. An interesting application of matching with prices in an artificial currency is Budish, Cachon, Kessler, and Othman (2017). Cramton, Ockenfels, Roth, and Wilson (2020) provide another example using both real and artificial currency to motivate supply and efficient allocation of scarce medical resources. Duffie (2020) argues for central clearing in the Treasury market—the paper is presented at CAFIN with questions from Cramton and others.

Lecture 8: Position auctions and common value auctions, Dirk Bergemann [2h19m] View before Thursday, 29 Sep 2022

Edelman, Ostrovsky, and Schwarz (2007) provide the basic results on position auctions. Varian (2007) covers similar ground with a different solution concept. Mas-Collel, Whinston, and Green (1995), chapter 23, remains one of the best treatments of mechanism design and incentives. Nisan, Tardos, and Vazirani (2008), chapter 28, gives an insightful introduction with a more algorithmic perspective on the generalized second-price auction.

Bergemann, Brooks, and Morris (2020) provides the basic results on common value auctions. Bergemann, Brooks, and Morris (2019) give a novel perspective on the revenue equivalence theorem. Bulow and Klemperer (2002) is a splendid and transparent introduction into the new insights that arise in common value auctions. Bulow and Klempeer (1996) is an excellent treatment of optimal auctions with interdependent values and more.

Lecture 9: Price discrimination and Bayesian persuasion, Dirk Bergemann [2h17m] View before Friday, 30 Sep 2022

Bergemann, Brooks, and Morris (2015) provide the basic results on price discrimination. Bulow and Roberts (1989) gives a transparent treatment of the revenue maximizing auction.

Kamenica and Gentzkow (2011) provide the basic results on Bayesian persuasion and information design. Bergemann and Morris (2019) provide a survey of this growing area of research and generalizations to strategic settings.

Lecture 10: Dynamic mechanism design: efficiency and revenue, Dirk Bergemann [2h12m] View before Friday, 30 Sep 2022

Bergemann and Valimaki (2010) provide basic results on dynamic mechanism design from an efficiency perspective. Bergemann and Valimaki (2019) provide a survey of the efficiency results over the last decade.

Courty and Li (2000) provide basic results on dynamic mechanism design from a revenue perspective. Borgers (2015) is an excellent reference on mechanism design. Chapter 11 covers much of the material presented here.


Akbarpour, Mohammad and Shengwu Li (2020) Credible Auctions,” Econometrica, 88, 425-467.

Aquilina, Matteo, Eric Budish, and Peter O’Neill (2021) “Quantifying the High-Frequency Trading ‘Arms Race’,” Quarterly Journal of Economics, forthcoming.

Ausubel, Lawrence M. and Peter Cramton (2001) “The Optimality of Being Efficient,”  Working Paper, University of Maryland.

Ausubel, Lawrence M. and Peter Cramton (2004) “Vickrey Auctions with Reserve Pricing,” Economic Theory, 23, 493-505.

Ausubel, Lawrence M., Peter Cramton, Marek Pycia, Marzena Rostek, and Marek Weretka (2014) “Demand Reduction and Inefficiency in Multi-Unit Auctions,” Review of Economic Studies, 81:4, 1366-1400.

Bergemann, Dirk, Kevin Breuer, Peter Cramton, and Axel Ockenfels (2021) “How Softening an Auction Reserve Price Not Only Increases Efficiency But Also Revenues,” Working Paper, University of Cologne.

Bergemann, Dirk and Juuso Valimaki (2010) The Dynamic Pivot Mechanism,” Econometrica, 78, 771-790.

Bergemann, Dirk and Juuso Valimaki (2019) Dynamic Mechanism Design: An Introduction,” Journal of Economic Literature, 57, 235-274.

Bergemann, Dirk and Stephen Morris (2019) Information Design: A Unified Perspective,” Journal of Economic Literature, 57, 44-95.

Bergemann, Dirk, Benjamin Brooks, and Stephen Morris (2015) The Limits of Price Discrimination,” American Economic Review, 105, 921-957.

Bergemann, Dirk, Benjamin Brooks, and Stephen Morris (2017) First-Price Auctions with General Information Structures: Implications for Bidding and Revenues,” Econometrica, 85, 107-143.

Bergemann, Dirk, Benjamin Brooks, and Stephen Morris (2019) Revenue Guarantee Equivalence,” American Economic Review, 109, 1911-1929.

Bergemann, Dirk, Benjamin Brooks, and Stephen Morris (2020) Countering the Winner’s Curse: Optimal Auction Design in a Common Value Model,” Theoretical Economics, 15, 1399-1434.

Bichler, Martin (2017) Market Design: A Linear Programming Approach to Auctions and Matching, Cambridge University Press.

Bolton, Gary E., Ben Greiner, and Axel Ockenfels (2013) Engineering Trust – Reciprocity in the Production of Reputation Information,” Management Science, 59, 265-285.

Borgers, Tilman (2015) An Introduction to the Theory of Mechanism Design, Oxford University Press.

Budish, Eric, Gérard P. Cachon, Judd B. Kessler, and Abraham Othman (2017) Course Match: A Large-Scale Implementation of Approximate Competitive Equilibrium from Equal Incomes for Combinatorial Allocation,” Operations Research, 65, 314-336.

Budish, Eric, Peter Cramton, Albert S. Kyle, Jeongmin Lee, and David Malec (2021) “Flow Trading”  Working Paper, University of Cologne.  [Presentation, NBER Market Design 2021 47-minute talk]

Budish, Eric, Peter Cramton, and John Shim (2015) “The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response,” Quarterly Journal of Economics, 130:4, 1547–1621. [Presentation]

Bulow, Jeremy and John Roberts (1989) The Simple Economics of Optimal Auctions,” Journal of Political Economy, 97, 1060-1090.

Bulow, Jeremy and Paul Klemperer (1996) Auctions vs Negotiations,” American Economic Review, 86, 180-194.

Bulow, Jeremy and Paul Klemperer (2002) Prices and the Winner’s Curse,” Rand Journal of Economics, 33, 1-21.

Camara, Modibo, Jason Hartline, Aleck Johnsen (2020) Mechanisms for a No-Regret Agent: Beyond the Common Prior,” Working Paper, Northwestern University.

Chen, Yan, Peter Cramton, John A. List, and Axel Ockenfels (2020) “Market Design, Human Behavior, and Management,” Management Science, forthcoming, 2020.

Coase, Ronald H. (1959) The Federal Communications Commission,” Journal of Law and Economics, 2, 1-40.

Courty, Pascal and Li Hao (2000) Sequential Screening,” Review of Economic Studies, 67, 697-717.

Cramton, Peter (1998) “Ascending Auctions,” European Economic Review, 42:3-5, 745-756.

Cramton, Peter (2012) “Medicare Auction Reform,” Testimony of Peter Cramton before the United States House Committee on Small Business, 11 September 2012. [Oral TestimonyVideo of Hearing (jump to my oralQ&A)]

Cramton, Peter (2013) “Spectrum Auction Design,” Review of Industrial Organization, 42:2, 161-190.

Cramton, Peter (2017) “Electricity Market Design,” Oxford Review of Economic Policy, 33:4, 589–612, November 2017. [Keynote Toulouse 2019]

Cramton, Peter (2021) “Lessons from the 2021 Texas Electricity Crisis,” Working Paper, University of Cologne, September 2021. [32-minute talk Stony Brook Game Theory, 5 July 2021]

Cramton, Peter, Emmanuele Bobbio, David Malec, and Pat Sujarittanonta (2020) “Electricity Markets in Transition: A multi-decade micro-model of entry and exit in advanced wholesale markets” Working Paper, University of Cologne. [1-hour talk at Texas PUC]

Cramton, Peter and Linda Doyle (2017) “Open Access Wireless Markets”  Telecommunications Policy, 41, 379-390.

Cramton, Peter, R. Richard Geddes and Axel Ockenfels (2019) “Using Technology to Eliminate Traffic Congestion,”  Journal of Institutional and Theoretical Economics, 175, 126-139.

Cramton, Peter, David JC MacKay, Axel Ockenfels and Steven Stoft (2017) Global Carbon Pricing—The Path to Climate CooperationMIT Press.

Cramton, Peter and Axel Ockenfels (2017) “The German 4G Spectrum Auction: Design and Behaviour,” Economic Journal, 127, F305-F324.

Cramton, Peter, Axel Ockenfels, Alvin E. Roth, and Robert B. Wilson (2020) “Borrow crisis tactics to get COVID-19 supplies to where they are needed,” Nature, 18 June.

Cramton, Peter and Jessie Schwartz (2000) “Collusive Bidding: Lessons from the FCC Spectrum Auctions,”  Journal of Regulatory Economics, 17, 229-252.

Cramton, Peter, Yoav Shoham, and Richard Steinberg (2006) Combinatorial Auctions, MIT Press.

Day, Robert and Peter Cramton (2012) “Quadratic Core-Selecting Payment Rules for Combinatorial Auctions”  Operations Research, 60:3, 588-603.

Duffie, Darrell (2020) Still the World’s Safe Haven? Redesigning the U.S. Treasury Market After the Covid-19 Crisis,” Hutchins Center Working Paper, Brookings Institution.

Edelman, Ben, Michael Ostrovsky, and Michael Schwarz (2007) Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords,” American Economic Review, 97, 242-259.

Fudenberg, Drew and Jean Tirole (1991) Game Theory, MIT Press.

Gale, Douglas and Lloyd Shapley (1962) College Admissions and the Stability of Marriage,” American Mathematical Monthly, 69, 9-15.

Gates, Bill (2021) How to Avoid a Climate DisasterKnopf.

Gibbons, Robert (1992) Game Theory for Applied Economists, Princeton University Press.

Harchol, Yotam, Dirk Bergemann, Nick Feamster, Eric Friedman, Arvind Krishnamurthy, Aurojit Panda, Sylvia Ratnasamy, Michael Schapira, and Scott Shenker (2020) A Public Option for the Core,” in Annual conference of the ACM Special Interest Group on Data Communication, SIGCOMM’20.

Hartline, Jason D., and Brendan Lucier (2015) Non-Optimal Mechanism Design,” American Economic Review, 105, 3102-3124.

Hatfield, John William and Paul R. Milgrom (2005) Matching with Contracts,” American Economic Review, 95, 913-935.

Kahneman, Daniel (2011) Thinking, Fast and Slow, MacMillan.

Kahneman, Daniel, Olivier Sibony, and Cass R. Sunstein (2021) Noise, Little, Brown & Company.

Kamenica, Emir and Matthew Gentzkow (2011) Bayesian Persuasion,” American Economic Review, 101, 2590-2615.

Kochenderfer, Mykel J. and Tim A. Wheeler (2019) Algorithms for Optimization, MIT Press.

Krishna, Vijay (2009) Auction Theory, Academic Press, Second Edition.

MacKay, David, Peter Cramton, Axel Ockenfels and Steven Stoft (2015) “Price Carbon—I will if you will,” Nature, 526, 315-316, 15 October.

Mas-Colell, Andreu, Michael D Whinston, and Jerry R. Green (1995) Microeconomic Theory, Oxford University PressOxford.

McAfee, R. Preston (2017) The Ideal Auction, Numberphile (YouTube video).

McAfee, R. Preston and John McMillan (1987) Auctions and Bidding,” Journal of Economic Literature, 25, 699-738.

Milgrom, Paul (2004) Putting Auction Theory to Work, Cambridge University Press.

Milgrom, Paul and Robert J. Weber (1982) A Theory of Auctions and Competitive Bidding,” Econometrica, 50, 1089-1122.

Myerson, Roger B. (1981) Optimal Auction Design,” Mathematics of Operations Research, 6, 58-73.

Nisan, N. Tim Roughgarden, Eva Tardos, and V Vazirani (2008) Algorithmic Game Theory, Cambridge University Press, Cambridge.

Nocedal, Jorge and Stephen J. Wright (2006) Numerical Optimization, Second Edition, Springer New York.

Osborne, Martin and Ariel Rubinstein (1994) A Course in Game Theory, MIT Press.

Parkes, David C. and Sven Seuken (2021) Economics and Computation, Cambridge University Press.

Rostek, Marzena and Ji Hee Yoon (2020) Equilibrium Theory of Financial Markets: Recent Developments,” Working Paper, University of Wisconsin.

Roth, Alvin E. (2002) The Economist as Engineer: Game Theory, Experimental Economics, and Computation as Tools of Design Economics,” Econometrica, 70:4, 1341–1378.

Roth, Alvin E. (2015), Who Gets What and Why, HarperCollins, UK, Ch. 3, 8, and 9.

Roth, Alvin E. (2018) Marketplaces, Markets, and Market Design,” American Economic Review, 108, 1609-1658.

Smil, Vaclav (2021) Numbers Don’t Lie, Penguin Books.

Stokes, Leah Cardamore (2020) Short Circuiting Policy, Oxford University Press.

Van Leuvan, Nya, Lauren Highleyman, Rod Fujita, and Ashleigh Kellerman (2022) Making Shift Happen, New Society Publishers.

Varian, Hal (2007) Position Auctions,” International Journal of Industrial Organization, 25, 1163-1178.

Vickrey, William (1961) Counterspeculation, Auctions, and Competitive Sealed-Tenders,” Journal of Finance, 16, 8-37.

Vohra, Rakesh V. (2011) Mechanism Design: A Linear Programming Approach, Cambridge University Press.

Wilson, Robert B. (1967) Competitive Bidding with Asymmetric Information,” Management Science, 13, 816-820.

Wilson, Robert B. (1969) Competitive Bidding with Disparate Information,” Management Science, 15, 446-448.

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