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On information and competition in private value auctions

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    Abstract

    How much information does an auctioneer want bidders to have in a private value environment? We address this question using a novel approach to ordering information structures based on the property that in private value settings more information leads to a more disperse distribution of buyers’ updated expected valuations. We define the class of precision criteria following this approach and different notions of dispersion, and relate them to existing criteria of informativeness. Using supermodular precision, we obtain three results: (1) a more precise information structure yields a more efficient allocation; (2) the auctioneer provides less than the efficient level of information since more information increases bidder informational rents; (3) there is a strategic complementarity between information and competition, so that both the socially efficient and the auctioneer’s optimal choice of precision increase with the number of bidders, and both converge as the number of bidders goes to infinity.

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    Bibliographic Info

    Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 937.

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    Date of creation: Jan 2006
    Date of revision: Jul 2006
    Handle: RePEc:upf:upfgen:937

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    Web page: http://www.econ.upf.edu/

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    Keywords: Auctions; Competition; Private Values; Informativeness Criteria;

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    1. Simon Board, 2009. "Revealing information in auctions: the allocation effect," Economic Theory, Springer, Springer, vol. 38(1), pages 125-135, January.
    2. Moscarini, Giuseppe & Ottaviani, Marco, 2001. "Price Competition for an Informed Buyer," Journal of Economic Theory, Elsevier, Elsevier, vol. 101(2), pages 457-493, December.
    3. Juan-Jos� Ganuza, 2004. "Ignorance Promotes Competition: An Auction Model of Endogenous Private Valuations," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 583-598, Autumn.
    4. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, Elsevier, vol. 71(1), pages 228-259, October.
    5. Marco LiCalzi, 2005. "A sufficient condition for all-or-nothing information supply in price discrimination," Game Theory and Information, EconWPA 0510005, EconWPA.
    6. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers, Stanford - Institute for Thoretical Economics 11, Stanford - Institute for Thoretical Economics.
    7. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
    8. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers, UCLA Department of Economics 762, UCLA Department of Economics.
    10. Kavajecz, Kenneth A. & Keim, Donald B., 2005. "Packaging Liquidity: Blind Auctions and Transaction Efficiencies," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 40(03), pages 465-492, September.
    11. Susan Athey, 2002. "Monotone Comparative Statics Under Uncertainty," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 187-223, February.
    12. Board, Simon, 2007. "Selling options," Journal of Economic Theory, Elsevier, Elsevier, vol. 136(1), pages 324-340, September.
    13. Z. Fang & H. Joe, 1992. "Further developments on some dependence orderings for continuous bivariate distributions," Annals of the Institute of Statistical Mathematics, Springer, Springer, vol. 44(3), pages 501-517, September.
    14. Olivier Compte & Philippe Jehiel, 2005. "Auctions and Information acquisition: Sealed-bid or Dynamic Formats?," Levine's Bibliography 784828000000000495, UCLA Department of Economics.
    15. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, Econometric Society, vol. 70(3), pages 1007-1033, May.
    16. Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
    17. Susan Athey & Jonathan Levin, 1998. "The Value of Information In Monotone Decision Problems," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 98-24, Massachusetts Institute of Technology (MIT), Department of Economics.
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    Cited by:
    1. Heski Bar-Isaac & Guillermo Caruana & Vicente Cuñat, 2010. "Information Gathering and Marketing," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 19(2), pages 375-401, 06.
    2. Vasiliki Skreta, 2008. "On the Informed Seller Problem: Optimal Information Disclosure," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 08-10, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Carlos Canon, 2011. "Matching & Information Provision by One-Sided and Two-Sided Platforms," Working Papers, NET Institute 11-20, NET Institute, revised Oct 2011.

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