Auctions, Actions, and the Failure of Information Aggregation
AbstractWe study a market in which k identical and indivisible objects are allocated using a uniform-price auction where n > k bidders each demand one object. Before the auction, each bidder receives an informative but imperfect signal about the state of the world. The good that is auctioned is a common-value object for the bidders, and a bidder’s valuation for the object is determined jointly by the state of the world and an action that he chooses after winning the object but before he observes the state. We show that there are equilibria in which the auction price is completely uninformative about the state of the world and aggregates no information even in an arbitrarily large auction. In the equilibrium that we construct, because prices do not aggregate information, agents have strict incentives to acquire costly information before they participate in the market. Also, market statistics other than price, such as the amount of rationing and bid distributions contain extra information about the state. Our findings sharply contrast with past work which shows that in large auctions where there is no ex-post action, the auction price aggregates information.
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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 1553.
Date of creation: 10 Oct 2012
Date of revision:
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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Web page: http://www.kellogg.northwestern.edu/research/math/
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Find related papers by JEL classification:
- Inf - Health, Education, and Welfare - - - - -
- Agg - General Economics and Teaching - - - - -
- JEL - Labor and Demographic Economics - - - - -
- Cla - Mathematical and Quantitative Methods - - - - -
- Num - Economic History - - - - -
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-20 (All new papers)
- NEP-GTH-2012-10-20 (Game Theory)
- NEP-MIC-2012-10-20 (Microeconomics)
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