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The Effect of Bidders' Asymmetries on Expected Revenues

Author

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  • Cantillon, Estelle

Abstract

Bidders' asymmetries are widespread in auction markets. Yet, their impact on behaviour and, ultimately, revenue and profits is still not well understood. In this Paper, I define a natural benchmark auction environment to compare any private value auction with asymmetrically distributed valuations. I show that the expected revenue from the benchmark auction always dominates that from the asymmetric auction, both in the first price auction and the second price auction. These results formalize and make transparent the idea that competition is reduced by bidders' asymmetries. The paper also contributes to a better understanding of competition and the nature of rents in auction markets. Anonymity of the allocation mechanism seems to be an important factor.

Suggested Citation

  • Cantillon, Estelle, 2001. "The Effect of Bidders' Asymmetries on Expected Revenues," CEPR Discussion Papers 2675, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2675
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    Citations

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    Cited by:

    1. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2009. "Learning, hubris and corporate serial acquisitions," Journal of Corporate Finance, Elsevier, vol. 15(5), pages 543-561, December.

    More about this item

    Keywords

    Auctions; Asymmetries; Anonymous mechanisms; Benchmark; Reduced competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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