The Vickrey Method

In a recent column, I discussed the merits of using a pure FAAB system versus using a hybrid of FAAB and waivers. Brian Walton of the expert Tout Wars league brought up the possibility of a third option known as the Vickrey Method. In economics, this is also known as Second Price Auction:

A Vickrey auction is a type of sealed-bid auction, where bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins, but the price paid is the second highest bid. The auction was created by William Vickrey. This type of auction is strategically similar to an English auction, and gives bidders an incentive to bid their true value.

Follow the Wikipedia link if you are truly interested in the economic theory behind this type of auction.

Tout Wars is not using a true Vickrey method; rather the winning bidder pays the price of the second highest bid plus one dollar. Nevertheless, it is still an interesting wrinkle on FAAB.

Since I've never used Vickrey, I'd have to ask Brian to post a response to tell us how it affected Tout Wars this year. However, I do have a list of FAAB bids from my league this year and I can tell you how wide windows were on various bids. I'm assuming a $1 floor for bids, so a $1 bid counts as "equal" in this method, since $1 would be the awarded price.

Equal: 82 (78 $1 bids)
$1 higher: 30 (21 $2 bids)
$2 higher: 14 (10 $3 bids)
$3 higher: 10 (5 $4 bids)
$4 higher: 13 (11 $5 bids)
$5 higher: 8 (4 $6 bids)
$6 higher: 2 (1 $7 bid)
$7 higher: 3
$8 higher: 3
$9 higher: 2 (2 $8 bids)
$11 higher: 1 ($12 bid)
$12 higher: 1 ($13 bid)
$15 higher: 1 ($16 bid)
$16 higher: 1
$28 higher: 1

199 players were purchased via FAAB. This is a predictably stable bidding pattern, where there aren't too many bids that are way out of line. The $28 overbid was on Russ Adams in the last week by a contending team that was either going to spend his FAAB or go home with it.

I included the bids in parenthesis where either the winning bidder was the only bidder, or everyone else bid $1 only. Notice the clump of shut-out bids between $8-16. These owners wanted these players badly, and didn't care if the league thought they were overbidding. Using the Vickrey method, all of these owners would have purchased the players they wanted for $1, not the higher price.

As a result, more money would be infused into the FAAB system, meaning that owners could continue to place high bids for players they really wanted over the course of the year. If someone bid $16 and another owner had bid, say $8, you wouldn't look it at like you overbid; you still would bid as if you would have been satisfied getting the player you wanted for $16.

That, at least, is how I see the Vickrey Method as working. Each player is still "worth" a certain portion of your FAAB, based on your needs, what time of year it is, how much FAAB you have left, and how badly you want a specific player. I don't think those $1 bids for a scrub to fill in for your injured superstar would change, since a lot of these players are interchangeable. You might bid $2 but - as you can see above - 21 of my league's 30 $2 bids won out over the next bid by $1. You'd still get the guy you want for $1.