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TheOtherDave comments on Open Thread, June 2-15, 2013 - Less Wrong
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A second-bid auction is one where all bidders submit their maximum willingness to pay, and then the bidder willing to pay the most pays what the second-highest bidder was willing to pay. An English auction is where bidders submit bids which they will have to pay, with the idea that once the second-highest bidder will stop raising the bid once they pass their threshold.
There's a lot of theoretical work showing that second-bid auctions are all-around more efficient. English auctions can encourage the highest bidder to overbid, and the winner's curse refers to the phenomenon that the winner of an auction is generally the person who overestimated its value by the most. Second bid auctions mitigate that by making them pay only the second highest estimate.
If JohnWittle is the only bidder in the auction, then in a second-bid auction he would receive gwern's soul for free, but because this is an English auction, he has to pay his full bid, and so loses out for dramatically overestimating its market value- like gwern planned all along!
Well, yes, technically that's true... but what prevents/discourages gwern (or his accomplice) from submitting an $N-1 bid (where N is the current sole bid amount)?
Typically, second-bid auctions are sealed, and all opened at once at the end of the auction, so it won't be known that JohnWittle has bid, or how much he has bid, until the auction is over.
Ah. (nods) That makes sense.
If I were going to do that, I would simply have set a reserve price.
Not the same thing, surely? Submitting an N-1 bid causes the top bidder to pay effectively their bid... in effect turning a second-bid auction into an English auction as defined above. Setting a reserve price sets a floor that has no relationship to the top bidder's bid.
But sure, the fact that you didn't set a reserve price also suggests that you wouldn't take advantage of this loophole in your counterfactual second-bid auction.