Ignorance Promotes Competition: An Auction Model with Endogenous Private Valuations

We study a situation in which an auctioneer wishes to sell an object to one of N risk-neutral bidders with heterogeneous preferences. The auctioneer does not know bidders' preferences but has private information about the characteristics of the object, and must decide how much information to reveal prior to the auction. We show that the auctioneer has incentives to release less information than would be efficient and that the amount of information released increases with the level of competition (as measured by the number of bidders). Furthermore, in a perfectly competitive market the auctioneer would provide the efficient level of information.

[1]  Mike Burkart,et al.  Initial Shareholdings and Overbidding in Takeover Contests , 1995 .

[2]  Giuseppe Moscarini,et al.  Price Competition for an Informed Buyer , 2001, J. Econ. Theory.

[3]  Guofu Tan,et al.  Entry and R & D in procurement contracting , 1992 .

[4]  M. Stegeman.  Participation Costs and Efficient Auctions , 1996 .

[5]  P. Reny,et al.  On the failure of the linkage principle in multi-unit auctions , 1999 .

[6]  Jean-Charles Rochet,et al.  Strategic Information Gathering Before a Contract is Offered , 1998 .

[7]  Andrea Prat,et al.  The Value of Public Information in Monopoly , 2001 .

[8]  D. Sappington,et al.  Supplying Information to Facilitate Price Discrimination , 1994 .

[9]  Paul R. Milgrom,et al.  Monotone Comparative Statics , 1994 .

[10]  Joel Sobel,et al.  Information Control in the Principal-Agent Problem , 1993 .

[11]  Robert W. Rosenthal,et al.  On some myths about sequenced common-value auctions , 1998 .

[12]  Gathering information before the contract is offered: The case with two states of nature , 1994 .

[13]  Marcel Boyer,et al.  Bayesian Models in Economic Theory , 1984 .

[14]  Paul R. Milgrom,et al.  A theory of auctions and competitive bidding , 1982 .

[15]  A. Edlin,et al.  Strict Monotonicity in Comparative Statics , 1998 .

[16]  N. Persico.  Information acquisition in auctions , 2000 .

[17]  Jacques Crémer,et al.  Gathering Information before Signing a Contract , 1991 .

[18]  David H. Reiley.  Auctions on the Internet: What's Being Auctioned, and How? , 2000 .