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Information Acquisition in Interdependent Value Auctions

We consider an auction environment with interdependent values. Each bidder can learn her payoff type through costly information acquisition. We contrast the socially optimal decision to acquire information with the equilibrium solution in which each agent has to privately bear the cost of information acquisition. In the context of the generalized Vickrey-Clarke-Groves mechanism, we establish that the equilibrium level exceeds the socially optimal level of information with positive interdependence. The individual decisions to acquire information are strategic substitutes. The difference between the equilibrium and the efficient level of information acquisition is increasing in the interdependence of the bidders' valuations and decreasing in the number of informed bidders.

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File URL: http://cowles.econ.yale.edu/P/cd/d16a/d1619.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 1619.

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Length: 38 pages
Date of creation: Jul 2007
Date of revision:
Publication status: Published in Journal of the European Economic Association (March 2009), 7(1): 61-89
Handle: RePEc:cwl:cwldpp:1619
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Web page: http://cowles.econ.yale.edu/

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  1. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-43, June.
  2. Bergemann, Dirk & Shi, Xianwen & Valimaki, Juuso, 2007. "Information Acquisition in Interdependent Value Auctions," Working Papers 25, Yale University, Department of Economics.
  3. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
  4. Wolfgang Pesendorfer & Jeroen M. Swinkels, 1995. "The Loser's Curse and Information Aggregation in Common Value Auctions," Discussion Papers 1147, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Jehiel, Philippe & Moldovanu, Benny, 2001. "Efficient Design with Interdependent Valuations," Econometrica, Econometric Society, vol. 69(5), pages 1237-59, September.
  6. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
  7. Ichiro Obara, 2006. "The Full Surplus Extraction Theorem with Hidden Actions," Levine's Bibliography 122247000000001206, UCLA Department of Economics.
  8. Gadi Barlevy & Pietro Veronesi, . "Information Acquisition in Financial Markets," CRSP working papers 360, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  9. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March.
  10. Chamley, Christophe, 2007. "Complementarities in information acquisition with short-term trades," Theoretical Economics, Econometric Society, vol. 2(4), December.
  11. Matthew O. Jackson, 2002. "Efficiency and Information Aggregation in Auctions with Costly Information," Microeconomics 0211012, EconWPA.
  12. French, Kenneth R & McCormick, Robert E, 1984. "Sealed Bids, Sunk Costs, and the Process of Competition," The Journal of Business, University of Chicago Press, vol. 57(4), pages 417-41, October.
  13. P. Dasgupta & Eric Maskin, 1998. "Efficient Auctions," Harvard Institute of Economic Research Working Papers 1857, Harvard - Institute of Economic Research.
  14. Dirk Bergemann & Juuso Vaimaki, 2000. "Information Acquisition and Efficient Mechanism Design," Cowles Foundation Discussion Papers 1248, Cowles Foundation for Research in Economics, Yale University.
  15. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  16. Wolfgang Pesendorfer & Jeroen M. Swinkels, 1996. "Efficiency and Information Aggregation in Auctions," Discussion Papers 1168, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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