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An Asymmetric Common-Value Auction Model

Donald B. Hausch
The RAND Journal of Economics
Vol. 18, No. 4 (Winter, 1987), pp. 611-621
Published by: Wiley on behalf of RAND Corporation
Stable URL: http://www.jstor.org/stable/2555645
Page Count: 11
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An Asymmetric Common-Value Auction Model
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Abstract

This article develops a model allowing asymmetric information between two bidders in an auction for a common-value object. It supposes that there is a common prior distribution on the object's value and that each bidder receives a private signal conditional on the object's unknown true value. Asymmetry comes about through a difference in the precision of the bidder's signals. Placing a restriction on the nature of this difference, I determine the equilibrium bidding strategies for the first-price and second-price auctions. The strategies are symmetric, and the second-price auction generates a higher seller's expected revenue, a result that extends the well-known revenue-ordering result of symmetric-information auctions. I do, however, provide an example to show that this ordering is not necessarily maintained in a less restricted asymmetric setting. Finally, another example illustrates that the seller may prefer that bidders be asymmetrically informed to releasing information that would reduce the asymmetry.

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