Paper #937

Title:

On information and competition in private value auctions

Authors:

Juan José Ganuza and José S. Penalva

Date:

January 2006 (Revised: July 2006)

Abstract:

How much information does an auctioneer want bidders to have in a private value environment? We address this question using a novel approach to ordering information structures based on the property that in private value settings more information leads to a more disperse distribution of buyers’ updated expected valuations. We define the class of precision criteria following this approach and different notions of dispersion, and relate them to existing criteria of informativeness. Using supermodular precision, we obtain three results: (1) a more precise information structure yields a more efficient allocation; (2) the auctioneer provides less than the efficient level of information since more information increases bidder informational rents; (3) there is a strategic complementarity between information and competition, so that both the socially efficient and the auctioneer’s optimal choice of precision increase with the number of bidders, and both converge as the number of bidders goes to infinity.

Keywords:

Auctions, Competition, Private Values, Informativeness Criteria

JEL codes:

D44, D82, D83

Area of Research:

Microeconomics

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