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Multidimensional Private Value Auctions

  • Stephen Morris

    ()

    (Yale University, Cowles Foundation)

  • Hanming Fang

    ()

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

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.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm387.

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Date of creation: 28 Jul 2004
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Handle: RePEc:ysm:somwrk:ysm387
Contact details of provider: Web page: http://icf.som.yale.edu/
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