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Second-price auctions with information acquisition costs

Author

Listed:
  • Takaaki Abe

    (Kyushu University)

  • Tsuyoshi Onda

    (Tokyo Institute of Technology)

  • Takehiko Yamato

    (Institute of Science Tokyo)

Abstract

We analyze bidders’ information acquisition behaviors in second-price private value auctions. In our model, each bidder lacks knowledge for their own valuation of the object for sale and can only discover it by incurring a cost. We investigate the pure strategy equilibrium of information acquisition, providing conditions for the existence of equilibrium and proposing an algorithm for discovering all equilibria. Our findings suggest that the number of informed bidders remains constant across all equilibria. Furthermore, we demonstrate that the expected revenue is a decreasing function of the number of uninformed bidders.

Suggested Citation

  • Takaaki Abe & Tsuyoshi Onda & Takehiko Yamato, 2025. "Second-price auctions with information acquisition costs," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(1), pages 21-36, April.
    • Handle: RePEc:spr:etbull:v:13:y:2025:i:1:d:10.1007_s40505-024-00277-7
    DOI: 10.1007/s40505-024-00277-7
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    References listed on IDEAS

    as
    1. DavidJ. Cooper & Hanming Fang, 2008. "Understanding Overbidding In Second Price Auctions: An Experimental Study," Economic Journal, Royal Economic Society, vol. 118(532), pages 1572-1595, October.
    2. Hausch, Donald B & Li, Lode, 1993. "A Common Value Auction Model with Endogenous Entry and Information Acquisition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 315-334, April.
    3. Tan, Guofu & Yilankaya, Okan, 2006. "Equilibria in second price auctions with participation costs," Journal of Economic Theory, Elsevier, vol. 130(1), pages 205-219, September.
    4. Olivier Compte & Philippe Jehiel, 2007. "Auctions and information acquisition: sealed bid or dynamic formats?," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 355-372, June.
    5. Shi, Xianwen, 2012. "Optimal auctions with information acquisition," Games and Economic Behavior, Elsevier, vol. 74(2), pages 666-686.
    6. Xiaoyong Cao & Guofu Tan & Guoqiang Tian & Okan Yilankaya, 2018. "Equilibria in second-price auctions with private participation costs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(2), pages 231-249, March.
    7. Nina Bobkova, 2024. "Information Choice in Auctions," American Economic Review, American Economic Association, vol. 114(7), pages 1883-1915, July.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Acquisition costs; Equilibrium; Information acquisition; Second-price auction;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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