Sealed Bid Auctions and the Search for Better Information

by the quality of the information available to the players. In particular the analysis is designed to give some insight into the players' incentives to obtain an informational advantage over their competitors. Our interest lies mainly in understanding the economic structure of the problem, and analysing the interactions that occur among the players. We have, therefore, limited ourselves to the analysis of a model with quite restrictive assumptions. The advantage of proceeding in this manner is that it enables us to obtain interesting explicit results with only a limited amount of mathematical computations. The disadvantage is, of course, that it is unclear to what extent the results can be generalized. In the model analysed here it turns out that: (a) Aggregate expected profits of the bidders fall, as the quality of the information available to them increases. It is thus mainly the seller who gains, when all participants try to improve their information. This seems to be a quite general result, and has been derived under considerably less restrictive assumptions in Case (1979), Reece (1978) and Rothkopf (1969), among others. (b) Even in the absence of collusion, it may turn out that no bidder ever places a bid greater than or equal to the true value of the tract. While it can easily be seen that this result depends strongly on the specific assumptions of the model we analyse, it does illustrate that it will be very difficult to prove that the players of an auction game are acting collusively. (c) Each participant's bidding strategy will be affected by the quality of the information available to his competitors. When this interaction is taken into account, it turns out that an increase in the quality of the information available to any one of them may lead to a fall in his expected profits. This is the main novel result of the paper

Aggregate (composite) · Bidding · Collusion · Common value auction · Competitor analysis · Economics · Incentive · Mathematical economics · Microeconomics · Quality (philosophy) · Auction Theory and Applications · Computer Science · Consumer Market Behavior and Pricing · Game Theory and Applications

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