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Endogenous Information Acquisition on Opponents' Valuations in Multidimensional First Price Auctions

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  • Tian, Guoqiang
  • Xiao, Mingjun

Abstract

This paper investigates bidder's covert behavior of endogenous information acquisition on her opponents' valuations in first price auction model with independent private values. Such an information acquisition setting leads to bidimensional type space and bidimensional strategy space. We consider two different specifications of the environments: the ex ante information acquisition setting and the interim information acquisition setting. In equilibria the expected payoffs of the bidder under these specifications could exceed the counterpart payoffs of the corresponding standard sealed-bid auctions without information acquisition as long as the cost is small, but the auctioneer has lower payoffs in these models than those of the standard ones. Moreover, the incurred information cost becomes the deadweight loss, resulting in ine±cient outcomes.

Suggested Citation

  • Tian, Guoqiang & Xiao, Mingjun, 2007. "Endogenous Information Acquisition on Opponents' Valuations in Multidimensional First Price Auctions," MPRA Paper 41214, University Library of Munich, Germany, revised Jan 2010.
  • Handle: RePEc:pra:mprapa:41214
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    File URL: https://mpra.ub.uni-muenchen.de/41214/1/MPRA_paper_41214.pdf
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    References listed on IDEAS

    as
    1. Guzman, Rolando M & Kolstad, Charles D., 1997. "Auction Equilibrium with Costly Information Acquisition," University of California at Santa Barbara, Economics Working Paper Series qt4w0787ng, Department of Economics, UC Santa Barbara.
    2. Eric Maskin & John Riley, 2000. "Equilibrium in Sealed High Bid Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 439-454.
    3. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-943, June.
    4. Mount, Kenneth & Reiter, Stanley, 1974. "The informational size of message spaces," Journal of Economic Theory, Elsevier, vol. 8(2), pages 161-192, June.
    5. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    6. Shi, Xianwen, 2012. "Optimal auctions with information acquisition," Games and Economic Behavior, Elsevier, vol. 74(2), pages 666-686.
    7. Hernando-Veciana, Ángel, 2009. "Information acquisition in auctions: Sealed bids vs. open bids," Games and Economic Behavior, Elsevier, vol. 65(2), pages 372-405, March.
    8. repec:wsi:wschap:9789814374590_0009 is not listed on IDEAS
    9. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1.
    10. Leandro Arozamena & Estelle Cantillon, 2004. "Investment Incentives in Procurement Auctions," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 1-18.
    11. Hanming Fang & Stephen Morris, 2012. "Multidimensional Private Value Auctions," World Scientific Book Chapters,in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 9, pages 319-356 World Scientific Publishing Co. Pte. Ltd..
    12. Kolstad, Charles D., 1997. "A Model of Auction Equilibrium with Costly Information Acquisition," University of California at Santa Barbara, Economics Working Paper Series qt4502p3n4, Department of Economics, UC Santa Barbara.
    13. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
    14. Juan-José Ganuza, 2003. "Ignorance Promotes Competition: an Auction Model with Endogenous Private Valuations," Working Papers 107, Barcelona Graduate School of Economics.
    15. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1.
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    More about this item

    Keywords

    First-price sealed-bid auctions; endogenous information acquisition; opponents' valuation; profitability;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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