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The Insider's Curse

Listed author(s):
  • Angel Hernando-Veciana

    (Universidad de Alicante)

  • Michael Tröge

    (ESCP-EAP)

This paper studies an auction model in which one of the bidders, the insider, has better information about a common component of the value of the good for sale, than the other bidders, the outsiders. Our main result shows that the insider may have incentives to disclose her private information if she faces sufficiently strong competition from the outsiders. We also show that the insider can protect the value of her private information by hiding her presence in the auction to the outsiders. Finally, we analyze the implications of information revelation on the efficiency of the auction and on the auctioneer's expected revenue.

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File URL: http://econwpa.repec.org/eps/mic/papers/0503/0503012.pdf
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Paper provided by EconWPA in its series Microeconomics with number 0503012.

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Length: 48 pages
Date of creation: 17 Mar 2005
Handle: RePEc:wpa:wuwpmi:0503012
Note: Type of Document - pdf; pages: 48. pdf file, embedded fonts, 48 pages at double space
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Marco Pagnozzi, 2003. "Sorry Winners," CSEF Working Papers 108, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 09 May 2007.
  2. Dirk Bergemann & Juuso Vaimaki, 2000. "Information Acquisition and Efficient Mechanism Design," Cowles Foundation Discussion Papers 1248, Cowles Foundation for Research in Economics, Yale University.
  3. Philippe Jehiel & Benny Moldovanu, 1998. "Efficient Design with Interdependent Valuations," Discussion Papers 1244, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Dirk Bergemann & Martin Pesendorfer, 2001. "Information Structures in Optimal Auctions," Cowles Foundation Discussion Papers 1323, Cowles Foundation for Research in Economics, Yale University.
  5. Frutos, María Ángeles de & Pechlivanos, Lambros, 1999. "Second-price common-value auctions under multidimensional uncertainty," UC3M Working papers. Economics 6139, Universidad Carlos III de Madrid. Departamento de Economía.
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  7. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers 762, UCLA Department of Economics.
  8. Krishna, Vijay, 2003. "Asymmetric English auctions," Journal of Economic Theory, Elsevier, vol. 112(2), pages 261-288, October.
  9. Bulow, Jeremy I. & Huang, Ming & Klemperer, Paul, 1996. "Toeholds and Takeovers," CEPR Discussion Papers 1486, C.E.P.R. Discussion Papers.
  10. Larson, Nathan, 2009. "Private value perturbations and informational advantage in common value auctions," Games and Economic Behavior, Elsevier, vol. 65(2), pages 430-460, March.
  11. Benoit, Jean-Pierre & Dubra, Juan, 2006. "Information revelation in auctions," Games and Economic Behavior, Elsevier, vol. 57(2), pages 181-205, November.
  12. Ángel Hernando Veciana, 2006. "Information Acquisition In Auctions: Sealed Bids Vs. Open Bids," Working Papers. Serie AD 2006-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  13. Juan-José Ganuza, 2004. "Ignorance Promotes Competition: An Auction Model of Endogenous Private Valuations," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 583-598, Autumn.
  14. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  15. 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.
  16. Jacob K. Goeree & Theo Offerman, 2003. "Competitive Bidding in Auctions with Private and Common Values," Economic Journal, Royal Economic Society, vol. 113(489), pages 598-613, 07.
  17. Milgrom, Paul & Weber, Robert J., 1982. "The value of information in a sealed-bid auction," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 105-114, June.
  18. Athey, S., 1997. "Sigle Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Working papers 97-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  19. Marco Ottaviani, 2000. "The Value of Public Information in Monopoly," Econometric Society World Congress 2000 Contributed Papers 1479, Econometric Society.
  20. David McAdams & Michael Schwarz, 2007. "Credible Sales Mechanisms and Intermediaries," American Economic Review, American Economic Association, vol. 97(1), pages 260-276, March.
  21. 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.
  22. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-943, June.
  23. Campbell, Colin M. & Levin, Dan, 2000. "Can the Seller Benefit from an Insider in Common-Value Auctions?," Journal of Economic Theory, Elsevier, vol. 91(1), pages 106-120, March.
  24. Masahiro Okuno-Fujiwara & Andrew Postlewaite & Kotaro Suzumura, 1990. "Strategic Information Revelation," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 25-47.
  25. Milgrom, Paul R, 1979. "A Convergence Theorem for Competitive Bidding with Differential Information," Econometrica, Econometric Society, vol. 47(3), pages 679-688, May.
  26. Bikhchandani, Sushil & Riley, John G., 1991. "Equilibria in open common value auctions," Journal of Economic Theory, Elsevier, vol. 53(1), pages 101-130, February.
  27. Hagedorn, Marcus, 2009. "The value of information for auctioneers," Journal of Economic Theory, Elsevier, vol. 144(5), pages 2197-2208, September.
  28. Ilan Kremer, 2002. "Information Aggregation in Common Value Auctions," Econometrica, Econometric Society, vol. 70(4), pages 1675-1682, July.
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