The Loser's Curse and Information Aggregation in Common Value Auctions
We consider an auction in which k identical objects of unknown value are auctioned off to n bidders. The k highest bidders get an object and pay the k+1st bid. Bidders receive a signal that provides information about the value of the object. We characterize the unique symmetric equilibirum of this auction. We then consider a sequence of auctions Ar with nr bidders and kr objects. We show that price converges in probability to the true value of the object if and only if both kr-->infinity and nr--kr-->infinity, i.e., the number of objects and the number of bidders who do not receive an object in equilibrium go to infinty.
|Date of creation:||Dec 1995|
|Contact details of provider:|| Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014|
Web page: http://www.kellogg.northwestern.edu/research/math/
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- Robert Wilson, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 511-518.
- Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
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