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Second-price common-value auctions under multidimensional uncertainty

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  • de Frutos, Maria-Angeles
  • Pechlivanos, Lambros

Abstract

The literature has demonstrated that second-price common-value auctions are sensitive to the presence of asymmetries among bidders. Bikhchandani (1988) has shown that if it is common knowledge that a bidder has a disadvantage compared to her opponent, this bidder (almost surely) never wins the auction. This paper is the first to show that this result does not carry through when one allows for two-sided uncertainty. Whe show that even if the probabilities that one of the bidders is advantaged while the other one is disadvantaged are arbitrarily large, in every equilibrium, the disadvantaged bidder needs to win the auction with strictly positive probability. We then solve for the equilibria in two cases (one with two types and another with a continuum of types) and we characterize their expected revenues properties. We find that although they underperform relative to "comparable" symmetric auctions, they perform much better than what it is "assumed" in the literature.
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Suggested Citation

  • de Frutos, Maria-Angeles & Pechlivanos, Lambros, 2006. "Second-price common-value auctions under multidimensional uncertainty," Games and Economic Behavior, Elsevier, vol. 55(1), pages 43-71, April.
  • Handle: RePEc:eee:gamebe:v:55:y:2006:i:1:p:43-71
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    Cited by:

    1. Marco Pagnozzi, 2008. "Are Disadvanteged Bidders Doomed In Ascending Auctions?," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 683-683, September.
    2. Hernando-Veciana, Ángel & Tröge, Michael, 2011. "The insider's curse," Games and Economic Behavior, Elsevier, vol. 71(2), pages 339-350, March.
    3. Jan Boone & Jacob K. Goeree, 2009. "Optimal Privatisation Using Qualifying Auctions," Economic Journal, Royal Economic Society, vol. 119(534), pages 277-297, January.
    4. de Frutos, M.A. & Jarque, X., 2007. "Auctions with asymmetric common-values: The first-price format," Journal of Mathematical Economics, Elsevier, vol. 43(7-8), pages 795-817, September.
    5. John Asker & Estelle Cantillon, 2008. "Properties of scoring auctions," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 69-85, March.
    6. Schnitzlein, Charles R. & Shao, Minjie, 2013. "Capacity constraints and the winner's curse in multi-unit common value auctions," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(2), pages 188-201.
    7. Fong, Yuk-fai & Garrett, Daniel F., 2010. "Bidding in a possibly common-value auction," Games and Economic Behavior, Elsevier, vol. 70(2), pages 494-501, November.
    8. Abbink, Klaus & Irlenbusch, Bernd & Pezanis-Christou, Paul & Rockenbach, Bettina & Sadrieh, Abdolkarim & Selten, Reinhard, 2005. "An experimental test of design alternatives for the British 3G/UMTS auction," European Economic Review, Elsevier, vol. 49(2), pages 505-530, February.

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