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Optimal Common Value Auctions with Asymmetric Bidders

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  • Rajdeep Singh
  • Paul Povel

Abstract

How do informational asymmetries between bidders affect the outcome of common value auctions? Should the seller accept bids from bidders with more precise information? If so, under what conditions? What effect do such asymmetries have on the seller’s expected revenue? We analyze these questions in a simple model in which an insider competes with an outsider. Both have some information about the value of the asset for sale, but the insider’s information is more precise. We derive the optimal mechanism and show that it must be biased against the insider. With an optimal mechanism, the seller’s expected revenue is higher if the bidders are more asymmetrically informed. We show how the optimal mechanism can be implemented as a second-price sealed bid auction that lets the insider win only if his bid is above a hurdle price

Suggested Citation

  • Rajdeep Singh & Paul Povel, 2004. "Optimal Common Value Auctions with Asymmetric Bidders," Econometric Society 2004 North American Winter Meetings 51, Econometric Society.
    • Handle: RePEc:ecm:nawm04:51
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    Cited by:

    1. Dasgupta, Sudipto & Tsui, Kevin, 2003. "A "matching auction" for targets with heterogeneous bidders," Journal of Financial Intermediation, Elsevier, vol. 12(4), pages 331-364, October.
    2. Benoit, Jean-Pierre & Dubra, Juan, 2006. "Information revelation in auctions," Games and Economic Behavior, Elsevier, vol. 57(2), pages 181-205, November.

    More about this item

    Keywords

    Auctions; Common Value Auctions; Asymmetric Bidders; Winner’s Curse;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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