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Information advantage and dominant strategies in second-price auctions

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  • EINY, Ezra
  • HAIMANKO, Ori
  • ORZACH, Ram
  • SELA, Aner
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    Abstract

    We study a general model of common-value second-price auctions with differential information. We show that one of the bidders has an information advantage over the other bidders if and only if he possesses a dominant strategy. A dominant strategy is, in fact, unique, and is given by the conditional expectation of the common value with respect to his information field. Furthermore, when a bidder has information advantage, other bidders cannot make a profit.

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    Bibliographic Info

    Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2000055.

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    Date of creation: 00 Nov 2000
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    Handle: RePEc:cor:louvco:2000055

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    Related research

    Keywords: common-value second-price auctions; differential information; dominant strategies; information advantage.;

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    References

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    1. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
    2. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
    4. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    5. Paul Milgrom & Robert J. Weber, 1981. "The Value of Information in a Sealed-Bid Auction," Discussion Papers 462, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Wilson, Robert, 1992. "Strategic analysis of auctions," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 8, pages 227-279 Elsevier.
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    Cited by:
    1. Larson, Nathan, 2009. "Private value perturbations and informational advantage in common value auctions," Games and Economic Behavior, Elsevier, vol. 65(2), pages 430-460, March.

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