Monotone ratio orderings are refinements of first order stochastic dominance that allow monotone comparative statics results in games of incomplete information. We develop analogous refinements for second order stochastic dominance based on the monotonicity of the cumulative probability ratio and the unimodality of the likelihood and probability ratios. We go on to investigate comparative statics in first price auctions, both private and common value, of the effects of more precise information in the sense of the new orderings. We find that almost all types bid more aggressively under the new distribution than they did under the old, but the highest types may bid less. This leads to higher expected revenue in a simple common value auction, but to an ambiguous result in the private value case.
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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number
91.
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution D44 - Microeconomics - - Market Structure and Pricing - - - Auctions D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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Jeremy Bulow & Paul Klemperer, 1994.
"Auctions vs. Negotiations,"
NBER Working Papers
4608, National Bureau of Economic Research, Inc.
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Other versions:
Shorrocks, Anthony F, 1983.
"Ranking Income Distributions,"
Economica,
London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
[Downloadable!] (restricted)
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