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Ordinal Cheap Talk in Common Value Auctions

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  • Archishman Chakraborty
  • Nandini Gupta

Abstract

Sellers benefit on average from revealing information about their goods to buyers, but the incentive to exaggerate undermines the credibility of seller statements. When multiple goods are being auctioned, we show that ordinal cheap talk, which reveals a complete or partial ordering of the different goods by value, can be credible. Ordinal statements are not susceptible to exaggeration because they simultaneously reveal favorable information about some goods and unfavorable information about other goods. Any informative ordering increases revenues in accordance with the linkage principle, and the complete ordering is asymptotically revenue-equivalent to full revelation as the number of goods becomes large. These results provide a new explanation in addition to bundling, versioning, and complementarities for how a seller benefits from the sale of multiple goods.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 605.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nawm04:605

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Keywords: linkage principle; winner's curse; cheap talk;

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Cited by:
  1. Jackson, Matthew O. & Sonnenschein, Hugo F., 2003. "The Linking of Collective Decisions and Efficiency," Working Papers 1159, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Archishman Chakraborty & Nandini Gupta & Rick Harbaugh, 2006. "Best foot forward or best for last in a sequential auction?," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 176-194, 03.

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