The Loser's Curse and Information Aggregation in Common Value Auctions
AbstractWe 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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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1147.
Date of creation: Dec 1995
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Other versions of this item:
- Wolfgang Pesendorfer & Jeroen M. Swinkels, 1997. "The Loser's Curse and Information Aggregation in Common Value Auctions," Econometrica, Econometric Society, vol. 65(6), pages 1247-1282, November.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
- Paul Milgrom & Robert J. Weber, 1981.
"A Theory of Auctions and Competitive Bidding,"
447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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