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The Loser's Curse and Information Aggregation in Common Value Auctions

Wolfgang Pesendorfer and Jeroen M. Swinkels
Econometrica
Vol. 65, No. 6 (Nov., 1997), pp. 1247-1281
Published by: The Econometric Society
DOI: 10.2307/2171736
Stable URL: http://www.jstor.org/stable/2171736
Page Count: 35
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The Loser's Curse and Information Aggregation in Common Value Auctions
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Abstract

We consider an auction in which k identical objects of unknown value are auctioned off to n bidders. The k highest bidders get an object and pay the k + 1st bid. Bidders receive a signal that provides information about the value of the object. We characterize the unique symmetric equilibrium of this auction. We then consider a sequence of auctions Ar with nr bidders and kr objects. We show that price converges in probability to the true value of the object if and only if both $k_{r}\rightarrow \infty $ and $n_{r}-k_{r}\rightarrow \infty $, i.e., both the number of objects and the number of bidders who do not receive an object go to infinity.

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