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Auction Equilibrium with Costly Information Acquisition

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  • Guzman, Rolando M
  • Kolstad, Charles D.

Abstract

This paper presents a simple model of auction equilibrium. The distinctive feature of the model is that each bidder may discover the value that the item represents for herself, provided she spends some amount in order to be well informed. For each agent, the decision of whether or not to acquire information depends on a private cost of information acquisition and on her conjectures regarding the behavior of other bidders. A rational expectations equilibrium is characterized.

Suggested Citation

  • Guzman, Rolando M & Kolstad, Charles D., 1997. "Auction Equilibrium with Costly Information Acquisition," University of California at Santa Barbara, Economics Working Paper Series qt4w0787ng, Department of Economics, UC Santa Barbara.
    • Handle: RePEc:cdl:ucsbec:qt4w0787ng
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    References listed on IDEAS

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    1. Lee, Tom K., 1985. "Competition and information acquisition in first price auctions," Economics Letters, Elsevier, vol. 18(2-3), pages 129-132.
    2. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    3. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-943, June.
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    5. Tom K. Lee, 1984. "Incomplete Information, High-Low Bidding and Public Information in First Price Auctions," Management Science, INFORMS, vol. 30(12), pages 1490-1496, December.
    6. Schweizer, Urs & von Ungern-Sternberg, Thomas, 1983. "Sealed Bid Auctions and the Search for Better Information," Economica, London School of Economics and Political Science, vol. 50(197), pages 79-85, February.
    7. Robert B. Wilson, 2021. "Strategic Analysis of Auctions," Econometrica, Econometric Society, vol. 89(2), pages 555-561, March.
    8. Richard Engelbrecht-Wiggans, 1980. "State of the Art---Auctions and Bidding Models: A Survey," Management Science, INFORMS, vol. 26(2), pages 119-142, February.
    9. Milgrom, Paul & Weber, Robert J., 1982. "The value of information in a sealed-bid auction," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 105-114, June.
    10. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    11. Engelbrecht-Wiggans, Richard & Milgrom, Paul R. & Weber, Robert J., 1983. "Competitive bidding and proprietary information," Journal of Mathematical Economics, Elsevier, vol. 11(2), pages 161-169, April.
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    Cited by:

    1. repec:cdl:ucsbec:30-98 is not listed on IDEAS
    2. Rasmusen Eric Bennett, 2006. "Strategic Implications of Uncertainty over One's Own Private Value in Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-22, November.
    3. Vitali Gretschko & Alexander Rajko, 2015. "Excess information acquisition in auctions," Experimental Economics, Springer;Economic Science Association, vol. 18(3), pages 335-355, September.
    4. García, Diego & Urošević, Branko, 2013. "Noise and aggregation of information in large markets," Journal of Financial Markets, Elsevier, vol. 16(3), pages 526-549.
    5. Tian, Guoqiang & Xiao, Mingjun, 2007. "Endogenous Information Acquisition on Opponents' Valuations in Multidimensional First Price Auctions," MPRA Paper 41214, University Library of Munich, Germany, revised Jan 2010.
    6. Rolando Guzman & Charles Kolstad, 2007. "Researching Preferences, Valuation and Hypothetical Bias," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(3), pages 465-487, July.
    7. Ashish Arora & Amy Greenwald & Karthik Kannan & Ramayya Krishnan, 2007. "Effects of Information-Revelation Policies Under Market-Structure Uncertainty," Management Science, INFORMS, vol. 53(8), pages 1234-1248, August.
    8. repec:fth:calaec:30-98 is not listed on IDEAS

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