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The Insider's Curse

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Author Info

  • Angel Hernando-Veciana

    (Universidad de Alicante)

  • Michael Tröge

    (ESCP-EAP)

Abstract

This paper studies an auction model in which one of the bidders, the insider, has better information about a common component of the value of the good for sale, than the other bidders, the outsiders. Our main result shows that the insider may have incentives to disclose her private information if she faces sufficiently strong competition from the outsiders. We also show that the insider can protect the value of her private information by hiding her presence in the auction to the outsiders. Finally, we analyze the implications of information revelation on the efficiency of the auction and on the auctioneer's expected revenue.

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File URL: http://128.118.178.162/eps/mic/papers/0503/0503012.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0503012.

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Length: 48 pages
Date of creation: 17 Mar 2005
Date of revision:
Handle: RePEc:wpa:wuwpmi:0503012

Note: Type of Document - pdf; pages: 48. pdf file, embedded fonts, 48 pages at double space
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Web page: http://128.118.178.162

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Keywords: auctions; asymmetric information; information disclosure.;

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References

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  1. Bergemann, Dirk & Pesendorfer, Martin, 2007. "Information structures in optimal auctions," Journal of Economic Theory, Elsevier, vol. 137(1), pages 580-609, November.
  2. Bulow, Jeremy I & Huang, Ming & Klemperer, Paul, 1996. "Toeholds and Takeovers," CEPR Discussion Papers 1486, C.E.P.R. Discussion Papers.
  3. 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.
  4. 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.
  5. Hernando-Veciana, Ángel, 2009. "Information acquisition in auctions: Sealed bids vs. open bids," Games and Economic Behavior, Elsevier, vol. 65(2), pages 372-405, March.
  6. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. 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.
  8. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  9. Okuno-Fujiwara, Masahiro & Postlewaite, Andrew & Suzumura, Kotaro, 1990. "Strategic Information Revelation," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 25-47, January.
  10. Milgrom, Paul R, 1979. "A Convergence Theorem for Competitive Bidding with Differential Information," Econometrica, Econometric Society, vol. 47(3), pages 679-88, May.
  11. Campbell, Colin M. & Levin, Dan, 2000. "Can the Seller Benefit from an Insider in Common-Value Auctions?," Journal of Economic Theory, Elsevier, vol. 91(1), pages 106-120, March.
  12. 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.
  13. Marco Ottaviani, 2000. "The Value of Public Information in Monopoly," Econometric Society World Congress 2000 Contributed Papers 1479, Econometric Society.
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Cited by:
  1. Boone, J. & Goeree, J.K., 2005. "Optimal Privatization Using Qualifying Auctions," Discussion Paper 2005-021, Tilburg University, Tilburg Law and Economic Center.
  2. Florian Morath, 2013. "Volunteering and the strategic value of ignorance," Social Choice and Welfare, Springer, vol. 41(1), pages 99-131, June.
  3. Hernando-Veciana, Ángel, 2009. "Information acquisition in auctions: Sealed bids vs. open bids," Games and Economic Behavior, Elsevier, vol. 65(2), pages 372-405, March.
  4. Alejandro Francetich, 2013. "Becoming the Neighbor Bidder: Endogenous Winner’s Curse in Dynamic Mechanisms," Working Papers 501, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Laurent Lamy, 2007. "The Econometrics of Auctions with Asymmetric Anonymous Bidders," Working Papers 2007-24, Centre de Recherche en Economie et Statistique.
  6. Florian Morath, 2011. "Volunteering and the Strategic Value of Ignorance," CESifo Working Paper Series 3419, CESifo Group Munich.
  7. Jan Boone & Roy Chen & Jacob Goeree & Angelo Polydoro, 2009. "Risky procurement with an insider bidder," Experimental Economics, Springer, vol. 12(4), pages 417-436, December.
  8. Gregory Pavlov, 2013. "Correlated Equilibria and Communication Equilibria in All-pay Auctions," UWO Department of Economics Working Papers 20132, University of Western Ontario, Department of Economics.

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