The auction abstraction is applicable to many different areas.  One interesting are is in the sports world where the free agency process plays a large role (if the league’s collective bargaining agreement allows for this) in where players end up and how teams perform.  The sellers are the players themselves and the buyers are the teams.  Teams payoffs are determined by their valuation minus what they pay but this is essentially how much money they saved.  The payoff for the purposes of this post will only the immediate benefit to the team and will not factor in the players performance or extra revenue generated once the player is signed.

A paper about the effectiveness of the baseball free agency system titled Matching and Efficiency in the Baseball Free Agency System can be found http://www.jstor.org/view/0734306x/di009546/00p0208o/0

Prior to free agency upon the expiration of a player’s contract, his/her only option were to hope for a trade or sign a new contract with the current team.  A baseball player took his team to court and won the right to “free agency” for all players after 6 years of playing in the major leagues.  Free agency really just gives a player ownership of his/her skills as a baseball player and therefore gives him the right to sell that service to the team of his/her choosing.  So again the teams are the buyers and the players are the sellers.  This market has the interesting characteristic that there are many sellers who will sell for significantly less than than their ideal price because 1) even the low salaries are a nice living wage and 2) for some players it is about being able to do something they love which is priceless.

The third page details a doomsday scenario for the sellers in a marketplace.  In the 1980’s the team owners (buyers) were not happy with the perpetually increasing salaries they had to pay their players.  The buyers began to come up with ways to keep the salaries lower such as agreeing to bid on only their own players (eliminating competition and forcing players to accept lower bids) and proposing lower bid in a cooperative in systematic fashion (again effectively getting rid of the competative bidding wars that drive salaries up). 

 The number of players looking for a roster spot always exceeds the number of spots available so there are no market clearing prices.  We can assume that the valuations are independent.  This system is such that buyers are not on a level playing field because some cities are more attractive to play in than other cities and so the player may be willing to accept a minimum salary of more or less money.  This means that the cost of obtaining player x for one team is not the same as the cost for another team.  This complicates the auction process in my opinion.  Team y and z bid for player x.  Player x takes that bid and adds a team specific value to reach a “true bid” for that team.  Team y and z may or may not discover each others’ bids at their discretion and the discretion of player x.  Player x may or may not share the “true bid” because sharing his preference for a team will produce lower monetary bids while sharing his dislike for a team will produce higher bids.

 The paper discusses a system where all bids proposed to a player are available.  This alternative benefits the players less.  Teams are not participating directly with each other but they can view other teams’ bids and cater their bids to the apparent demand for the player.  A bidding war is still very possible though.

The paper also discusses a system where each team simply submits a maximum value they would be willing to sign a player for and each player submits a minimum value they would be willing to play for.  A computer would then find the a combination of players and teams that maximized social welfare according to the team max - the player min.  After that the player/team pairs would attempt to work out deals based on a computer-generated range and if they could not reach an agreement the player would be placed back into free agency and eligible to be bid on by other teams.  This third system is actually quite intriguing although something about it seems to take the “human”-ness out of free agency.  There would be no signing contracts, shaking hands, negotiating, or speaking to each other unless the computer says so.  Efficient system but with interesting implications for the human dynamic of the free agency marketplace…