IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v28y2010i2p127-130.html
   My bibliography  Save this article

The relation between variance and information rent in auctions

Author

Listed:
  • Katzman, Brett
  • Reif, Julian
  • Schwartz, Jesse A.

Abstract

This paper examines the conventional wisdom, expressed in McAfee and McMillan's (1987) widely cited survey paper on auctions, that links increased variance of bidder values to increased information rent. We find that although the conventional wisdom does indeed hold in their (1986) model of a linear contract auction, this relationship is an artifact of that particular model and cannot be generalized. Using Samuelson's (1987) model, which is similar but allows for unobservable costs, we show that increased variance does not always imply increased information rent. Finally, we give the appropriate measure of dispersion (different from variance) that provides the link between the bidder value distribution and information rent.

Suggested Citation

  • Katzman, Brett & Reif, Julian & Schwartz, Jesse A., 2010. "The relation between variance and information rent in auctions," International Journal of Industrial Organization, Elsevier, vol. 28(2), pages 127-130, March.
    • Handle: RePEc:eee:indorg:v:28:y:2010:i:2:p:127-130
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167-7187(09)00063-0
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chateauneuf, Alain & Cohen, Michele & Meilijson, Isaac, 2004. "Four notions of mean-preserving increase in risk, risk attitudes and applications to the rank-dependent expected utility model," Journal of Mathematical Economics, Elsevier, vol. 40(5), pages 547-571, August.
    2. Francesco Decarolis, 2009. "When the highest bidder loses the auction: theory and evidence from public procurement," Temi di discussione (Economic working papers) 717, Bank of Italy, Economic Research and International Relations Area.
    3. Patrick Bajari & Lixin Ye, 2003. "Deciding Between Competition and Collusion," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 971-989, November.
    4. Elena Krasnokutskaya, 2004. "Identification and Estimation in Highway Procurement Auctions under Unobserved Auction Heterogeneity," PIER Working Paper Archive 05-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    5. Susan Athey & Jonathan Levin & Enrique Seira, 2011. "Comparing open and Sealed Bid Auctions: Evidence from Timber Auctions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 207-257.
    6. Vuong, Q. & Laffont, J.J. & Elyakime, B. & Loisel, P., 1995. "Auctioning and Bargaining: An Econometric Study of Timber Auctions with Secret Reservation Prices," Papers 9502, Southern California - Department of Economics.
    7. Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-699, August.
    8. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    9. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721.
    10. Samuelson, William, 1987. "Auctions with Contingent Payments: Comment," American Economic Review, American Economic Association, vol. 77(4), pages 740-745, September.
    11. R. Preston McAfee & John McMillan, 1986. "Bidding for Contracts: A Principal-Agent Analysis," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 326-338, Autumn.
    12. William Samuelson, 1986. "Bidding for Contracts," Management Science, INFORMS, vol. 32(12), pages 1533-1550, December.
    13. Patrick Bajari & Stephanie Houghton & Steve Tadelis, 2006. "Bidding for Incomplete Contracts: An Empirical Analysis," NBER Working Papers 12051, National Bureau of Economic Research, Inc.
    14. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    15. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Charles J. Thomas, 2014. "How the Nature of Product Differentiation Affects Procurement Competition," Southern Economic Journal, John Wiley & Sons, vol. 81(2), pages 323-344, October.
    2. Kirkegaard, René, 2014. "Ranking asymmetric auctions: Filling the gap between a distributional shift and stretch," Games and Economic Behavior, Elsevier, vol. 85(C), pages 60-69.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nakabayashi, Jun, 2013. "Small business set-asides in procurement auctions: An empirical analysis," Journal of Public Economics, Elsevier, vol. 100(C), pages 28-44.
    2. Hickman Brent R. & Hubbard Timothy P. & Sağlam Yiğit, 2012. "Structural Econometric Methods in Auctions: A Guide to the Literature," Journal of Econometric Methods, De Gruyter, vol. 1(1), pages 67-106, August.
    3. Susan Athey & Philip A. Haile, 2006. "Empirical Models of Auctions," NBER Working Papers 12126, National Bureau of Economic Research, Inc.
    4. Bernard Lebrun, 2015. "Revenue-superior variants of the second-price auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(2), pages 245-275, June.
    5. Lamy, Laurent, 2012. "The econometrics of auctions with asymmetric anonymous bidders," Journal of Econometrics, Elsevier, vol. 167(1), pages 113-132.
    6. Fieseler, Karsten, 1997. "Bidding for unit-price contracts : how craftsmen should bid," Papers 97-03, Sonderforschungsbreich 504.
    7. Sweeting, Andrew & Bhattacharya, Vivek, 2015. "Selective entry and auction design," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 189-207.
    8. Philippe Jehiel & Laurent Lamy, 2020. "On the Benefits of Set-Asides," Journal of the European Economic Association, European Economic Association, vol. 18(4), pages 1655-1696.
    9. Anatolitis, Vasilios & Welisch, Marijke, 2017. "Putting renewable energy auctions into action – An agent-based model of onshore wind power auctions in Germany," Energy Policy, Elsevier, vol. 110(C), pages 394-402.
    10. Peter Cramton & Yoav Shoham & Richard Steinberg, 2007. "An Overview of Combinatorial Auctions," Papers of Peter Cramton 07oca, University of Maryland, Department of Economics - Peter Cramton, revised 2007.
    11. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications,, Elsevier.
    12. Boeheim, Rene & Zulehner, Christine, 1996. "Auctions - A Survey," Economics Series 39, Institute for Advanced Studies.
    13. De Liu & Jianqing Chen & Andrew B. Whinston, 2010. "Ex Ante Information and the Design of Keyword Auctions," Information Systems Research, INFORMS, vol. 21(1), pages 133-153, March.
    14. Laurent Lamy, 2013. "“Upping the ante”: how to design efficient auctions with entry?," RAND Journal of Economics, RAND Corporation, vol. 44(2), pages 194-214, June.
    15. Schmitz, Patrick W., 2003. "On second-price auctions and imperfect competition," Journal of Mathematical Economics, Elsevier, vol. 39(8), pages 901-909, November.
    16. Veronika Grimm, 2004. "On Procurement Auctions Of Complementary Goods," Working Papers. Serie AD 2004-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    17. Hu, Audrey & Offerman, Theo & Zou, Liang, 2011. "Premium auctions and risk preferences," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2420-2439.
    18. Jehiel, Philippe & Lamy, Laurent, 2014. "On discrimination in procurement auctions," CEPR Discussion Papers 9790, C.E.P.R. Discussion Papers.
    19. Stephanie Rosenkranz & Patrick W. Schmitz, 2007. "Reserve Prices in Auctions as Reference Points," Economic Journal, Royal Economic Society, vol. 117(520), pages 637-653, April.
    20. Schnizler, Björn & Neumann, Dirk & Veit, Daniel & Napoletano, Mauro & Catalano, Michele & Gallegati, Mauro & Reinicke, Michael & Streitberger, Werner & Eymann, Torsten, 2005. "Environmental analysis for application layer networks," Bayreuth Reports on Information Systems Management 1, University of Bayreuth, Chair of Information Systems Management.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:28:y:2010:i:2:p:127-130. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.