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Multidimensional Private Value Auctions

We consider parametric examples of two-bidder private value auctions in which each bidder observes her own private valuation as well as noisy signals about her opponentÌs private valuation. In such multidimensional private value auction environments, we show that the revenue equivalence between the first and second price auctions breaks down and there is no definite revenue ranking; while the second price auction is always efficient allocatively, the first price auction may be inefficient and the inefficiency may increase as the signal becomes more informative; equilibria may fail to exist for the first price auction. We also show that auction mechanisms provide different incentives for bidders to acquire costly information about opponents' valuation.

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File URL: http://cowles.yale.edu/sites/default/files/files/pub/d14/d1423.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1423.

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Length: 40 pages
Date of creation: May 2003
Publication status: Published in Journal of Economic Theory (2006), 126: 1-30
Handle: RePEc:cwl:cwldpp:1423
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Web page: http://cowles.yale.edu/

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