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The Effect of Bidders' Asymmetries on Expected Revenue in Auctions

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Author Info
Estelle Cantillon (Cowles Foundation, Yale University)

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Abstract

Bidders' asymmetries are widespread in auction markets. Yet, their impact on behavior and, ultimately, revenue and profits is still not well understood. In this paper, I define a natural benchmark auction environment to which to compare any private value auction with asymmetrically distributed valuations. I show that the expected revenue from the benchmark auction always dominates that from the asymmetric auction, both in the first price auction and the second price auction. These results formalize and make transparent the idea that competition is reduced by bidders' asymmetries. The paper also contributes to a better understanding of competition and the nature of rents in auction markets. Anonymity of the allocation mechanism seems to be an important factor.

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File URL: http://cowles.econ.yale.edu/P/cd/d12b/d1279.pdf
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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1279.

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Length: 37 pages
Date of creation: Oct 2000
Date of revision:
Handle: RePEc:cwl:cwldpp:1279

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Related research
Keywords: Auctions; asymmetries; anonymous mechanisms; benchmark; reduced competition;

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Find related papers by JEL classification:
D40 - Microeconomics - - Market Structure and Pricing - - - General
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

Cited by:
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  1. Harrison Cheng, 2005. "Ranking Sealed High-Bid and Open Asymmetric Auctions," IEPR Working Papers 05.26, Institute of Economic Policy Research (IEPR). [Downloadable!]
  2. Todd R. Kaplan & Shmuel Zamir, 2002. "A Note on Revenue Effects of Asymmetry in Private-Value Auctions," Discussion Paper Series dp291, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
  3. Paul Povel & Rajdeep Singh, 2003. "Bidder Asymmetry in Takeover Contests: The Role of Deal Protection Devices," Finance 0311011, EconWPA. [Downloadable!]
  4. Todd R. Kaplan & Shmuel Zamir, 2006. "Asymmetric Auctions: Analytic Solutions to the General Uniform Case," Levine's Bibliography 321307000000000410, UCLA Department of Economics. [Downloadable!]
    Other versions:
  5. Hanming Fang & Stephen Morris, 2003. "Multidimensional Private Value Auctions," Cowles Foundation Discussion Papers 1423, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  6. Marco Pagnozzi, 2006. "Are Disadvantaged Bidders Doomed in Ascending Auctions?," CSEF Working Papers 169, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
    Other versions:
  7. Jacob K. Goeree & Theo Offerman, 2002. "The Amsterdam Auction," Microeconomics 0205002, EconWPA. [Downloadable!]
  8. Rene Kirkegaard, 2005. "A Simple Approach to Analyzing Asymmetric First Price Auctions," Working Papers 0504, Brock University, Department of Economics, revised Nov 2005. [Downloadable!]
  9. Patrick Bajari, . "Comparing Competition and Collusion in Procurement Auctions: A Numerical Approach," Working Papers 00003, Stanford University, Department of Economics. [Downloadable!]
  10. Lescourret, Laurence & Robert, Christian Y., 2006. "Preferencing, internalization and inventory position," ESSEC Working Papers DR 06017, ESSEC Research Center, ESSEC Business School. [Downloadable!]
  11. Shachat, Jason, 2009. "Procuring Commodities: Request for Quote or Reverse Auctions?," MPRA Paper 13418, University Library of Munich, Germany. [Downloadable!]
  12. Leandro Arozamena & Estelle Cantillon, 2000. "Investment Incentives in Procurement Auctions," Cowles Foundation Discussion Papers 1276, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
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