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Private value perturbations and informational advantage in common value auctions

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  • Larson, Nathan

Abstract

We analyze the value of being better informed than one's rival in a two bidder, second price common value auction. Standard models of these auctions do not pin down relative bidding postures, but we show that by adding small amounts of private value information, a unique equilibrium can be restored. Additional common value information affects a bidder's payoff both directly, by increasing his information rent, and indirectly, by shifting the relative bidding posture of his opponent. Although the latter effect need not be positive, we establish broad conditions under which bidders with more information do better than their rivals. We turn to information acquisition and release and show that the desire to influence relative bidding postures can lead sellers to create new information rents (by releasing information privately to only one bidder) and bidders to forego information rents (instead choosing to gather information that a rival already has).

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 65 (2009)
Issue (Month): 2 (March)
Pages: 430-460

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Handle: RePEc:eee:gamebe:v:65:y:2009:i:2:p:430-460

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Web page: http://www.elsevier.com/locate/inca/622836

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Keywords: Common value auction Differential information;

References

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  1. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Paul Milgrom & Robert J. Weber, 1981. "The Value of Information in a Sealed-Bid Auction," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 462, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Mares, Vlad & Harstad, Ronald M., 2003. "Private information revelation in common-value auctions," Journal of Economic Theory, Elsevier, Elsevier, vol. 109(2), pages 264-282, April.
  4. repec:fth:louvco:0055 is not listed on IDEAS
  5. Hendricks, Kenneth & Porter, Robert H & Wilson, Charles A, 1994. "Auctions for Oil and Gas Leases with an Informed Bidder and a Random Reservation Price," Econometrica, Econometric Society, Econometric Society, vol. 62(6), pages 1415-44, November.
  6. Angel Hernando-Veciana, 2000. "Successful Uninformed Bidding," Econometric Society World Congress 2000 Contributed Papers 0791, Econometric Society.
  7. Campbell, Colin M. & Levin, Dan, 2000. "Can the Seller Benefit from an Insider in Common-Value Auctions?," Journal of Economic Theory, Elsevier, Elsevier, vol. 91(1), pages 106-120, March.
  8. Laskowski, Michael C. & Slonim, Robert L., 1999. "An Asymptotic Solution for Sealed Bid Common-Value Auctions with Bidders Having Asymmetric Information," Games and Economic Behavior, Elsevier, Elsevier, vol. 28(2), pages 238-255, August.
  9. Bikhchandani, Sushil & Riley, John G., 1991. "Equilibria in open common value auctions," Journal of Economic Theory, Elsevier, Elsevier, vol. 53(1), pages 101-130, February.
  10. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 921-43, June.
  11. Jacob K. Goeree & Theo Offerman, 2003. "Competitive Bidding in Auctions with Private and Common Values," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(489), pages 598-613, 07.
  12. EINY, Ezra & HAIMANKO, Ori & ORZACH, Ram & SELA, Aner, 2000. "Information advantage and dominant strategies in second-price auctions," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2000055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Citations

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Cited by:
  1. Daniel Quint, 2010. "Looking smart versus playing dumb in common-value auctions," Economic Theory, Springer, Springer, vol. 44(3), pages 469-490, September.
  2. Fong, Yuk-fai & Garrett, Daniel F., 2010. "Bidding in a possibly common-value auction," Games and Economic Behavior, Elsevier, Elsevier, vol. 70(2), pages 494-501, November.
  3. David Malueg & Ram Orzach, 2012. "Equilibrium and revenue in a family of common-value first-price auctions with differential information," International Journal of Game Theory, Springer, Springer, vol. 41(2), pages 219-254, May.
  4. Boone, Jan & Goeree, Jacob K., 2005. "Optimal Privatization Using Qualifying Auctions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5118, C.E.P.R. Discussion Papers.
  5. Ángel Hernando Veciana & Michael Tröge, 2005. "The Insider'S Curse," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2005-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Malueg, David A. & Orzach, Ram, 2009. "Revenue comparison in common-value auctions: Two examples," Economics Letters, Elsevier, vol. 105(2), pages 177-180, November.
  7. Alejandro Francetich, 2013. "Becoming the Neighbor Bidder: Endogenous Winner’s Curse in Dynamic Mechanisms," Working Papers 501, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  8. Ángel Hernando Veciana, 2006. "Information Acquisition In Auctions: Sealed Bids Vs. Open Bids," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2006-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  9. Liu, Heng, 2014. "Equilibrium selection in common-value second-price auctions," Games and Economic Behavior, Elsevier, Elsevier, vol. 84(C), pages 1-6.
  10. Florian Morath, 2013. "Volunteering and the strategic value of ignorance," Social Choice and Welfare, Springer, Springer, vol. 41(1), pages 99-131, June.
  11. Erik R. Fasten & Dirk Hofmann, 2010. "Two-sided Certification: The market for Rating Agencies," SFB 649 Discussion Papers SFB649DP2010-007, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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