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First Price Auctions with General Information Structures: Implications for Bidding and Revenue

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This paper explores the consequences of information in sealed bid first price auctions. For a given symmetric and arbitrarily correlated prior distribution over valuations, we characterize the set of possible outcomes that can arise in a Bayesian equilibrium for some information structure. In particular, we characterize maximum and minimum revenue across all information structures when bidders may not know their own values, and maximum revenue when they do know their values. Revenue is maximized when buyers know who has the highest valuation, but the highest valuation buyer has partial information about others' values. Revenue is minimized when buyers are uncertain about whether they will win or lose and incentive constraints are binding for all upward bid deviations. We provide further analytic results on possible welfare outcomes and report computational methods which work when we do not have analytic solutions. Many of our results generalize to asymmetric value distributions. We apply these results to study how entry fees and reserve prices impact the welfare bounds.

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File URL: http://cowles.yale.edu/sites/default/files/files/pub/d20/d2018.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 2018.

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Length: 101 pages
Date of creation: Aug 2015
Handle: RePEc:cwl:cwldpp:2018
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Web page: http://cowles.yale.edu/

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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Helmuts Āzacis & Péter Vida, 2015. "Collusive communication schemes in a first-price auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(1), pages 125-160, January.
  2. Eric Maskin & John Riley, 2000. "Asymmetric Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 413-438.
  3. Matthew O. Jackson & Jeroen M. Swinkels, 2005. "Existence of Equilibrium in Single and Double Private Value Auctions," Econometrica, Econometric Society, vol. 73(1), pages 93-139, 01.
  4. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
  5. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.
  6. FORGES, Françoise, "undated". "Five legitimate definitions of correlated equilibrium in games with incomplete informations," CORE Discussion Papers RP 1071, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  8. Kim, Jinwoo & Che, Yeon-Koo, 2004. "Asymmetric information about rivals' types in standard auctions," Games and Economic Behavior, Elsevier, vol. 46(2), pages 383-397, February.
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