Abstract not found

We usually assume increases in supply, allocation by rationing, and exclusion of potential buyers will never raise prices. But all of these activities raise the expected price in an important set of cases when common-value assets are sold. Furthermore, when we make the assumptions needed to rule out these "anomalies" when buyers are symmetric, small asymmetries among the buyers necessarily cause the anomalies to reappear.

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. JEL Classification: C72, D44.

Auctions generally do not lead to efficient outcomes when the expected value of the object for sale depends on both private and common value information. We report a series of first-price auction experiments to test three key predictions of auctions with private and common values: (i) inefficiencies grow with the uncertainty about the common value while revenues fall, (ii) increased competition results in more efficient outcomes and higher revenues, and (iii) revenues and efficiency are higher when information about the common value is publicly released. We compare the predictions of several bidding models, including Nash, when examining these issues. A model in which a fraction of the bidders falls prey to a winner's curse and decision-making is noisy, best describes bidding behavior. We find that revenues and efficiency are positively affected by increased competition and a reduction in uncertainty about the common value. The public release of high-quality information about the commo...

We analyze the value of being better informed than one’s rival in a two bidder, second price common value auction. In order to do so, we must pare down the continuum of equilibria that typically exists in this setting. We propose selecting an equilibrium that is robust to perturbing the common value of the object with small private value components. Under this selection, we show that having better information about the common value will frequently hurt rather than help a bidder and that the ratio of private value to common value information held by a bidder has a significant effect on the value of information. 1

The OECD Competition Committee debated competition in bidding markets in October 2006. This document includes an executive summary and the documents from the meeting:

In auctions of complex and valuable assets and in some procurement auctions, a two stage procedure is commonly used. In the first stage, bidders make non-binding “indicative bids” that are used to separate serious candidates. Then, after an information gathering stage, serious bids are made. This paper develops a theory of indicative bidding based on the assumption that learning valuations is costly. In various models, we show that efficient entry is unlikely to be achieved under the current practice of indicative bidding. We analyze alternative rules that may improve upon the current design. In particular, we show that by introducing auctions for entry rights with binding first-round bids, the auctioneer may in general induce efficient entry and improve the performance of two-stage bidding. Conditions under which these alternative schemes work are identified, and the optimal auctions are characterized. We also show that a revenue equivalence result holds in this two-stage auction environment.