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Information Acquisition In Auctions: Sealed Bids Vs. Open Bids

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  • Ángel Hernando Veciana

    ()
    (Universidad de Alicante)

Abstract

This paper studies the incentives of a bidder to acquire information in anauction when her information acquisition decision is observed by the otherbidders before they bid. Our results show that the sealed bid (second price)auction induces more information acquisition about a common component ofthe value than the open (English) auction, but less about the private componentof the value. Moreover, under our assumptions more information about theprivate value and less information about the common value improves efficiencyand revenue in some sense. Consequently, our results suggest new argumentsin favor of the open auction.

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2006-10.

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Length: 32 pages
Date of creation: Jun 2006
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2006-10

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Keywords: auctions; open information acquisition; asymmetric information.;

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References

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  1. Angel Hernando-Veciana & Michael Tröge, 2005. "The Insider's Curse," Microeconomics 0503012, EconWPA.
  2. Engelbrecht-Wiggans, Richard & Milgrom, Paul R. & Weber, Robert J., 1983. "Competitive bidding and proprietary information," Journal of Mathematical Economics, Elsevier, vol. 11(2), pages 161-169, April.
  3. Bulow, Jeremy I & Huang, Ming & Klemperer, Paul, 1996. "Toeholds and Takeovers," CEPR Discussion Papers 1486, C.E.P.R. Discussion Papers.
  4. Engelbrecht-Wiggans, Richard, 2001. "The effect of entry and information costs on oral versus sealed-bid auctions," Economics Letters, Elsevier, vol. 70(2), pages 195-202, February.
  5. Olivier Compte & Philippe Jehiel, 2007. "Auctions and information acquisition: sealed bid or dynamic formats?," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 355-372, 06.
  6. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  7. Wolfgang Pesendorfer & Jeroen M. Swinkels, 1995. "The Loser's Curse and Information Aggregation in Common Value Auctions," Discussion Papers 1147, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Athey, S., 1997. "Sigle Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Working papers 97-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Bikhchandani, Sushil & Haile, Philip A. & Riley, John G., 2002. "Symmetric Separating Equilibria in English Auctions," Games and Economic Behavior, Elsevier, vol. 38(1), pages 19-27, January.
  10. Ángel Hernando Veciana, 2001. "Successful Uninformed Bidding," Working Papers. Serie AD 2001-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  11. Jan Boone & JacobK. Goeree, 2009. "Optimal Privatisation Using Qualifying Auctions," Economic Journal, Royal Economic Society, vol. 119(534), pages 277-297, 01.
  12. Jonathan Levin & Susan Athey, 2001. "The Value of Information in Monotone Decision Problems," Working Papers 01003, Stanford University, Department of Economics.
  13. Dirk Bergemann & Juuso Vaimaki, 2000. "Information Acquisition and Efficient Mechanism Design," Cowles Foundation Discussion Papers 1248, Cowles Foundation for Research in Economics, Yale University.
  14. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
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  17. 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.
  18. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
  19. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  20. 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.
  21. Harstad, Ronald M, 1990. "Alternative Common-Value Auction Procedures: Revenue Comparisons with Free Entry," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 421-29, April.
  22. McAfee, R. Preston & McMillan, John, 1987. "Auctions with a stochastic number of bidders," Journal of Economic Theory, Elsevier, vol. 43(1), pages 1-19, October.
  23. Ye, Lixin, 2007. "Indicative bidding and a theory of two-stage auctions," Games and Economic Behavior, Elsevier, vol. 58(1), pages 181-207, January.
  24. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  25. Bikhchandani, Sushil & Riley, John G., 1991. "Equilibria in open common value auctions," Journal of Economic Theory, Elsevier, vol. 53(1), pages 101-130, February.
  26. Hausch, Donald B & Li, Lode, 1993. "A Common Value Auction Model with Endogenous Entry and Information Acquisition," Economic Theory, Springer, vol. 3(2), pages 315-34, April.
  27. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
  28. Krishna, Vijay, 2003. "Asymmetric English auctions," Journal of Economic Theory, Elsevier, vol. 112(2), pages 261-288, October.
  29. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-43, June.
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Citations

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Cited by:
  1. Angel Hernando-Veciana & Michael Tröge, 2005. "The Insider's Curse," Microeconomics 0503012, EconWPA.
  2. Tri Vi Dang & Florian Morath, 2013. "The Taxation of Bilateral Trade with Endogenous Information," Working Papers tax-mpg-rps-2013-07, Max Planck Institute for Tax Law and Public Finance.
  3. Florian Morath & Johannes Münster, 2013. "Information acquisition in conflicts," Economic Theory, Springer, vol. 54(1), pages 99-129, September.
  4. Florian Morath, 2011. "Volunteering and the Strategic Value of Ignorance," CESifo Working Paper Series 3419, CESifo Group Munich.
  5. Florian Morath, 2013. "Volunteering and the strategic value of ignorance," Social Choice and Welfare, Springer, vol. 41(1), pages 99-131, June.

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