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Auctions, Actions, and the Failure of Information Aggregation

  • Alp Atakan
  • Mehmet Ekmekci

We study a market in which k identical and indivisible objects are allocated using a uniform-price auction where n > k bidders each demand one object. Before the auction, each bidder receives an informative but imperfect signal about the state of the world. The good that is auctioned is a common-value object for the bidders, and a bidder’s valuation for the object is determined jointly by the state of the world and an action that he chooses after winning the object but before he observes the state. We show that there are equilibria in which the auction price is completely uninformative about the state of the world and aggregates no information even in an arbitrarily large auction. In the equilibrium that we construct, because prices do not aggregate information, agents have strict incentives to acquire costly information before they participate in the market. Also, market statistics other than price, such as the amount of rationing and bid distributions contain extra information about the state. Our findings sharply contrast with past work which shows that in large auctions where there is no ex-post action, the auction price aggregates information.

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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1553.

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Date of creation: 10 Oct 2012
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Handle: RePEc:nwu:cmsems:1553
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  1. Stephan Lauermann, 2013. "Dynamic Matching and Bargaining Games: A General Approach," American Economic Review, American Economic Association, vol. 103(2), pages 663-89, April.
  2. Han Hong & Matthew Shum, 2002. "Rates of Information Aggregation in Common Value Auctions," Economics Working Paper Archive 436, The Johns Hopkins University,Department of Economics.
  3. Ostrovsky, Michael, 2009. "Information Aggregation in Dynamic Markets with Strategic Traders," Research Papers 2053, Stanford University, Graduate School of Business.
  4. Wolfgang Pesendorfer & Jeroen M. Swinkels, 1997. "The Loser's Curse and Information Aggregation in Common Value Auctions," Econometrica, Econometric Society, vol. 65(6), pages 1247-1282, November.
  5. Bond, Philip & Eraslan, Hülya, 2010. "Information-based trade," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1675-1703, September.
  6. Asher Wolinsky & Stephan Lauermann, 2009. "Search with Adverse Selection," 2009 Meeting Papers 827, Society for Economic Dynamics.
  7. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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