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Auctions and Information acquisition: Sealed-bid or Dynamic Formats?

  • Olivier Compte
  • Philippe Jehiel

The value of an asset is generally not known a priori, and it requires costly investments to be discovered. In such contexts with endogenous information acquisition, which selling procedure generates more revenues? We show that dynamic formats, such as ascending-price or multistage auctions, perform better than their static counterpart. This is because dynamic formats allow bidders to observe the number of competitors left throughout the selling procedure. Thus, even if competition appears strong ex ante, it may turn out to be weak along the dynamic format, thereby making the option to acquire information valuable. This very possibility also induces the bidders to stay longer in the auction, just to learn about the state of competition. Both effects boost revenues, and our analysis provides a rationale for using dynamic formats rather than sealed-bid ones.

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 784828000000000495.

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Date of creation: 26 Oct 2005
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Handle: RePEc:cla:levrem:784828000000000495
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  1. Harstad, Ronald M. & Michael H. Rothkopf, 1995. "An "Alternating Recognition" Model of English Auctions," Discussion Paper Serie B 348, University of Bonn, Germany.
  2. Athey, S., 1997. "Sigle Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Working papers 97-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Engelbrecht-Wiggans, Richard, 2001. "The effect of entry and information costs on oral versus sealed-bid auctions," Economics Letters, Elsevier, vol. 70(2), pages 195-202, February.
  4. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  5. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May.
  6. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  7. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers 762, UCLA Department of Economics.
  8. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-43, June.
  9. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
  10. Olivier Compte & Philippe Jehiel, 2008. "Gathering Information before signing a contract: A screening perspective," Post-Print halshs-00754311, HAL.
  11. Crémer, Jacques & Khalil, Fahad, 1991. "Gathering Information before Signing a Contract," IDEI Working Papers 5, Institut d'Économie Industrielle (IDEI), Toulouse.
  12. Harstad, Ronald M, 1990. "Alternative Common-Value Auction Procedures: Revenue Comparisons with Free Entry," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 421-29, April.
  13. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  14. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
  15. Jeremy Bulow & Paul Klemperer, 1994. "Auctions vs. Negotiations," NBER Working Papers 4608, National Bureau of Economic Research, Inc.
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