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Multidimensional Private Value Auctions

Author

Listed:
  • Stephen Morris

    (Yale University, Cowles Foundation)

  • Hanming Fang

    (Yale University, Faculty of Arts & Sciences, Department of Economics (Box 8268))

Abstract

We consider parametric examples of two-bidder private value auctions in which each bidder observes her own private valuation as well as noisy signals about her opponent's private valuation. In such multidimensional private value auction environments, we show that the revenue equivalence between the first and second price auctions breaks down and there is no definite revenue ranking; while the second price auction is always efficient allocatively, the first price auction may be inefficient and the inefficiency may increase as the signal becomes more informative; equilibria may fail to exist for the first price auction. We also show that auction mechanisms provide different incentives for bidders to acquire costly information about opponents' valuation.

Suggested Citation

  • Stephen Morris & Hanming Fang, 2004. "Multidimensional Private Value Auctions," Yale School of Management Working Papers ysm387, Yale School of Management.
    • Handle: RePEc:ysm:somwrk:ysm387
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    Keywords

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    JEL classification:

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

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