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Efficiency and Information Aggregation in Auctions

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Listed author(s):
  • Jeroen M. Swinkels
  • Wolfgang Pesendorfer

Abstract

The tension between allocative efficiency and information aggregation is explored in the context of an auction: k identical objects of unknown quality are auctioned off to n bidders whose tastes affect their valuation of an object of given quality. Bidders receive a signal about the quality of the objects. The k highest bidders get an object and pay a price equal to the k + first highest bid. We find conditions under which, in the limit, objects are allocated efficiently to those with the highest tastes, and price converges in probability to the value of an object to the marginal taste type.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.90.3.499
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 90 (2000)
Issue (Month): 3 (June)
Pages: 499-525

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Handle: RePEc:aea:aecrev:v:90:y:2000:i:3:p:499-525
Note: DOI: 10.1257/aer.90.3.499
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Find related papers by JEL classification:
  • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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  1. Jeroen M. Swinkels & Wolfgang Pesendorfer, 2000. "Efficiency and Information Aggregation in Auctions," American Economic Review, American Economic Association, vol. 90(3), pages 499-525, June.
  2. Timothy Feddersen & Wolfgang Pesendorfer, 1997. "Voting Behavior and Information Aggregation in Elections with Private Information," Econometrica, Econometric Society, vol. 65(5), pages 1029-1058, September.
  3. Haile,P.A., 1999. "Auctions with resale," Working papers 33, Wisconsin Madison - Social Systems.
  4. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  5. Grossman, Sanford J & Stiglitz, Joseph E, 1976. "Information and Competitive Price Systems," American Economic Review, American Economic Association, vol. 66(2), pages 246-253, May.
  6. Robert Wilson, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 511-518.
  7. Milgrom, Paul R, 1979. "A Convergence Theorem for Competitive Bidding with Differential Information," Econometrica, Econometric Society, vol. 47(3), pages 679-688, May.
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