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Multidimensional Private Value Auctions

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Author Info
Stephen Morris () (Yale University, Cowles Foundation)
Hanming Fang () (Yale University, Faculty of Arts & Sciences, Department of Economics (Box 8268))

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Abstract

We consider parametric examples of two-bidder private value auctions in which each bidder observes her own private valuation as well as noisy signals about her opponent's private valuation. In such multidimensional private value auction environments, we show that the revenue equivalence between the first and second price auctions breaks down and there is no definite revenue ranking; while the second price auction is always efficient allocatively, the first price auction may be inefficient and the inefficiency may increase as the signal becomes more informative; equilibria may fail to exist for the first price auction. We also show that auction mechanisms provide different incentives for bidders to acquire costly information about opponents' valuation.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm387.

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Date of creation: 28 Jul 2004
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Handle: RePEc:ysm:somwrk:ysm387

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Related research
Keywords: Multidimensional Auctions Revenue Equivalence Allocative Efficiency Information Acquisition

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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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.:
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    Other versions:
  2. Kenneth Mount & Stanley Reiter, 1973. "The Informational Size of Message Spaces," Discussion Papers 3, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  3. Feinberg, Yossi & Skyzypacz, Andrzej, 2002. "Uncertainty about Uncertainty and Delay in Bargaining," Research Papers 1765, Stanford University, Graduate School of Business. [Downloadable!]
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  5. Plum, M, 1992. "Characterization and Computation of Nash-Equilibria for Auctions with Incomplete Information," International Journal of Game Theory, Springer, vol. 20(4), pages 393-418.
  6. Matthews, Steven, 1987. "Comparing Auctions for Risk Averse Buyers: A Buyer's Point of View," Econometrica, Econometric Society, vol. 55(3), pages 633-46, May. [Downloadable!] (restricted)
    Other versions:
  7. Kim, Jinwoo & Che, Yeon-Koo, 2004. "Asymmetric information about rivals' types in standard auctions," Games and Economic Behavior, Elsevier, vol. 46(2), pages 383-397, February. [Downloadable!] (restricted)
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  9. Dirk Bergemann & Stephen Morris, 2003. "Robust Mechanism Design," Levine's Bibliography 666156000000000035, UCLA Department of Economics. [Downloadable!]
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  10. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Blackwell Publishing, vol. 67(3), pages 413-38, July.
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  12. Che, Yeon-Koo & Gale, Ian, 1998. "Standard Auctions with Financially Constrained Bidders," Review of Economic Studies, Blackwell Publishing, vol. 65(1), pages 1-21, January. [Downloadable!] (restricted)
  13. Hanming Fang & Stephen Morris, 2003. "Multidimensional Private Value Auctions," Cowles Foundation Discussion Papers 1423, Cowles Foundation, Yale University. [Downloadable!]
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  14. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  17. Matthew O. Jackson & Leo K. Simon & Jeroen M. Swinkels & William R. Zame, 2002. "Communication and Equilibrium in Discontinuous Games of Incomplete Information," Econometrica, Econometric Society, vol. 70(5), pages 1711-1740, September. [Downloadable!] (restricted)
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  19. Zvika Neeman, 1998. "The Relevance of Private Information in Mechanism Design," Papers 0093, Boston University - Industry Studies Programme.
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  20. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, vol. 71(5), pages 1443-1489, 09. [Downloadable!] (restricted)
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  21. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Blackwell Publishing, vol. 44(3), pages 511-18, October. [Downloadable!] (restricted)
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  24. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
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  25. Estelle Cantillon, 2000. "The Effect of Bidders' Asymmetries on Expected Revenue in Auctions," Cowles Foundation Discussion Papers 1279, Cowles Foundation, Yale University. [Downloadable!]
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  26. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-45, June. [Downloadable!] (restricted)
  27. Jacob Rubinstein & Elmar Wolfstetter & Michael Landsberger & Shmuel Zamir, 2001. "First-price auctions when the ranking of valuations is common knowledge," Review of Economic Design, Springer, vol. 6(3), pages 461-480. [Downloadable!] (restricted)
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  28. Battigalli, Pierpaolo & Siniscalchi, Marciano, 2003. "Rationalizable bidding in first-price auctions," Games and Economic Behavior, Elsevier, vol. 45(1), pages 38-72, October. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, 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.)

  1. Ichiro Obara, 2006. "The Full Surplus Extraction Theorem with Hidden Actions," Levine's Bibliography 122247000000001206, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Ricardo Gonçalves & John D Hey, 2007. "Experimental Evidence on English Auctions: Oral Outcry vs. Clock," Discussion Papers 07/09, Department of Economics, University of York. [Downloadable!]
  3. James Andreoni & Yeon-Koo Che & Jinwoo Kim, 2005. "Asymmetric Information about Rivals’ Types in Standard Auctions: An Experiment," Levine's Bibliography 666156000000000474, UCLA Department of Economics. [Downloadable!]
    Other versions:
  4. Ricardo Gonçalves, 2008. "A communication equilibrium in English auctions with discrete bidding," Documentos de Trabalho em Economia (Working Papers in Economics) 042008, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto). [Downloadable!]
  5. repec:att:wimass:192066 is not listed on IDEAS
  6. Lixin Ye, 2004. "Optimal Auctions with Endogenous Entry," Contributions to Theoretical Economics, Berkeley Electronic Press, vol. 4(1), pages 1158-1158. [Downloadable!] (restricted)
  7. John Asker & Estelle Cantillon, 2004. "Equilibrium in Scoring Auctions," Working Papers 2004.148, Fondazione Eni Enrico Mattei. [Downloadable!]
  8. A. Alexander Elbittar, 2005. "Impact of Valuation Ranking Information on Bidding in First-Price," Microeconomics 0508008, EconWPA. [Downloadable!]
  9. Luciano I. de Castro Filho & Araújo, Aloísio Pessoa de & Humberto Luiz Ataide Moreira, 2004. "Pure strategy equilibria of multidimensional and Non-monotonic auctions," Economics Working Papers (Ensaios Economicos da EPGE) 571, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  10. Aloisio Araujo & Luciano I. de Castro Filho, 2004. "Pure Strategy Equilibria of Multidimensional and Non-Monotonic Auctions," Econometric Society 2004 Latin American Meetings 300, Econometric Society. [Downloadable!]
  11. Hanming Fang, 2004. "Multidimensional Private Value Auctions," Theory workshop papers 121473000000000021, UCLA Department of Economics. [Downloadable!]
    Other versions:
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