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Protecting Losers Undermines Auction Credibility

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  • Yuta Nakamura
  • Noriaki Okamoto

Abstract

A second-price auction must determine its price but need not learn how far losing values lie below it. We show that protecting this information from the seller conflicts with auction credibility. In deterministic protocols with private communication, lower-tail privacy forces the first informative question to reveal whether a bidder has the highest possible value. The seller can then manipulate the winner's payment without any bidder detecting the deviation, increasing revenue at some valuation profiles and never reducing it. A descending protocol conceals losing values below the price but permits manipulation; with mandatory sale, a credible ascending protocol reveals them.

Suggested Citation

  • Yuta Nakamura & Noriaki Okamoto, 2026. "Protecting Losers Undermines Auction Credibility," Papers 2610.12204, arXiv.org.
    • Handle: RePEc:arx:papers:2610.12204
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    File URL: https://arxiv.org/pdf/2610.12204
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