A large importer who places relatively greater weight on future than current oil consumption will import less oil in the future than if it were able to commit itself in advance to future tariffs, and may find itself worse off than if it were unable to impose tariffs at all. Futures markets and storage modify these adverse effects and may avoid the problem of dynamic inconsistency.

For many centuries, auctions have been a common form of selling procedure. Although auction methods vary across country and product, the two most frequently observed are the open, ascending bid (or English) auction and the sealed-bid auction. Recent theoretical research has led to a theory of equilibrium bidding in these two auctions and a wide range of alternatives as well. As a result it has been possible to compare the revenue extracted by the seller under different auction methods and even to characterize the revenue-maximizing auction. The Revenue Equivalence Theorem (see for example, William Vickrey, 1961, Roger Myerson, 1981, and Riley and William Samuelson, 1981) asserts that when each bidder's reservation price for a unit of an indivisible good is an independent draw from the same distribution, and bidders are risk neutral, the sealed-bid auction generates the same expected revenue as the open auction. Much recent research has involved weakening each of the main hypotheses-risk neutrality, identically distributed values, and independence of values-in turn. We shall illustrate some of the principal conclusions of this work by considering the properties of open and sealed-bid auctions in a model of two bidders whose reservation prices can assume only two values, and by comparing these auctions to the optimal or revenuemaximizing auction. I. Revenue Equivalence