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Competitive Bidding in Auctions with Private and Common Values

  • Jacob K. Goeree

    ()

  • Theo Offerman

The objects for sale in most auctions display both private and common value characteristics. This salient feature of many real-world auctions has not yet been incorporated into a strategic analysis of equilibrium bidding behavior. This paper reports such an analysis in the context of a stylized model in which bidders receive a private value signal and an independent common value signal. We show that more uncertainty about the common value results in lower efficiency and higher profits for the winning bidder. Information provided by the auctioneer decreases uncertainty, which improves efficiency and increases the seller's revenue. These positive effects of public information disclosure are stronger the more precise the information. Efficiency and revenues are also higher when more bidders enter the auction. Since our model nests both the private and common value case it may lead to an improved specification of empirical models of auctions.

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File URL: http://www.virginia.edu/economics/RePEc/vir/virpap/papers/virpap337.pdf
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Paper provided by University of Virginia, Department of Economics in its series Virginia Economics Online Papers with number 337.

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Length: 31 pages
Date of creation: Nov 1999
Date of revision:
Handle: RePEc:vir:virpap:337
Contact details of provider: Web page: http://www.virginia.edu/economics/home.html

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  19. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
  20. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  21. Paarsch, Harry J., 1992. "Deciding between the common and private value paradigms in empirical models of auctions," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 191-215.
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