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Information advantage and dominant strategies in second-price auctions

  • EINY, Ezra
  • ORZACH, Ram
  • SELA, Aner

We study a general model of common-value second-price auctions with differential information. We show that one of the bidders has an information advantage over the other bidders if and only if he possesses a dominant strategy. A dominant strategy is, in fact, unique, and is given by the conditional expectation of the common value with respect to his information field. Furthermore, when a bidder has information advantage, other bidders cannot make a profit.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2000055.

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Date of creation: 00 Nov 2000
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Handle: RePEc:cor:louvco:2000055
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  1. Klemperer, Paul, 1999. "Auction Theory: a Guide to the Literature," CEPR Discussion Papers 2163, C.E.P.R. Discussion Papers.
  2. Robert Wilson, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 511-518.
  3. Paul Milgrom & Robert J. Weber, 1981. "The Value of Information in a Sealed-Bid Auction," Discussion Papers 462, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  6. Wilson, Robert, 1992. "Strategic analysis of auctions," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 8, pages 227-279 Elsevier.
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