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The Loser's Curse and Information Aggregation in Common Value Auctions

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  • Wolfgang Pesendorfer
  • Jeroen M. Swinkels

Abstract

We consider an auction in which k identical objects of unknown value are auctioned off to n bidders. The k highest bidders get an object and pay the k+1st bid. Bidders receive a signal that provides information about the value of the object. We characterize the unique symmetric equilibirum of this auction. We then consider a sequence of auctions Ar with nr bidders and kr objects. We show that price converges in probability to the true value of the object if and only if both kr-->infinity and nr--kr-->infinity, i.e., the number of objects and the number of bidders who do not receive an object in equilibrium go to infinty.

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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1147.

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Date of creation: Dec 1995
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Handle: RePEc:nwu:cmsems:1147

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  1. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  2. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
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