Ignorance Is Bliss: Matching in Auctions with an Uninformed Seller

Lamping, Jennifer (2008): Ignorance Is Bliss: Matching in Auctions with an Uninformed Seller.

Abstract

In many auctions, matching between the bidder and seller raises the value of the contract for both parties. However, information about the quality of the match may be incomplete. We consider the case in which each bidder observes the quality of his match with the seller but the seller does not observe the quality of his matches with the bidders. Our objective is to determine whether it is in the seller's interest to observe the matches before selecting the winner. It is shown that the seller’s value for the information may be negative: the seller’s knowledge of the matches generates an asymmetry across bidders which depresses bids. The more matching matters, the greater the penalty associated with observing the matches.

• Item Type: MPRA Paper
• Language: English
• Keywords: Asymmetries, Auctions, Auction Theory, Bidding, Information Revelation, Matching, Signaling
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C78 - Bargaining Theory ; Matching Theory; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

References

Avery, C.: Strategic jump bidding in English auctions. Review of Economic Studies 65, 185-210 (1998)

Bikhchandani, S., Huang, C.-F.: Auctions with resale markets: An exploratory model of treasury bill markets. Review of Financial Studies 2, 311-339 (1989)

Branco, F.: The design of multidimensional auctions. RAND Journal of Economics 28, 63-81 (1997)

Bulow, J., Levin, J.: Matching and price competition. American Economic Review 96, 652-668 (2006)

Bulow, J., Roberts, J.: The simple economics of optimal auctions. Journal of Political Economy 97, 1060-1090 (1989)

Cantillon, E.: The effect of bidders' asymmetries on expected revenue in auctions. Games and Economic Behavior 62, 1-25 (2008)

Chalot, J.P.: Personal interview. Petroleos de Venezuela (1996, October 31)

Che, Y.-K.: Design competition through multidimensional auctions. RAND Journal of Economics 24, 668-680 (1993)

Cho, I.-K., Kreps, D.M.: Signaling games and stable equilibria. Quarterly Journal of Economics 102, 179-221 (1987)

Dalkir, S., Logan, J., Mason, R.: Mergers in symmetric and asymmetric noncooperative auction markets: The effects of prices and efficiency. International Journal of Industrial Organization 18, 383-413 (2000)

Das Varma, G.: Bidding for a process innovation under alternative modes of competition. International Journal of Industrial Organization 21, 15-37 (2003)

Goeree, J.: Bidding for the future: Signaling in auctions with an aftermarket. Journal of Economic Theory 108, 345-364 (2003)

Graham, D.A., Marshall, R.C.: Collusive bidder behavior at single-object second-price and English auctions. Journal of Political Economy 95, 1217-1239 (1987)

Gumbel, A.: Civil War writer's one-page outline earns him record $11m book and film contract. The Independent (2002, April 8)

Haile, P.A.: Auctions with private uncertainty and resale opportunities. Journal of Economic Theory 108, 72-110 (2003)

Jehiel, P., Moldovanu, B.: Efficient design with interdependent valuations. Econometrica 69, 1237-1259 (2001)

Kaplan, T.R., Zamir, S.: A note on revenue effects of asymmetry on private value auctions. Hebrew University of Jerusalem, Center for the Study of Rationality Discussion Paper 291 (2002)

Katzman, B., Rhodes-Kropf, M.: The consequences of information revealed in auctions. Mimeo, Columbia University, Graduate School of Business (2002)

Lamping, J.: Matching in auctions with an informed seller. Mimeo, Columbia University (2005)

Mailath, G.J., Zemsky, P.: Collusion in second price auctions with heterogeneous bidders. Games and Economic Behavior 3, 467-486 (1991)

Marshall, R.C., Meurer, M.J., Richard, J.-F., Stromquist, W.: Numerical analysis of asymmetric first-price auctions. Games and Economic Behavior 7, 193-220 (1994)

Maskin, E., Riley, J.: Existence and uniqueness of equilibrium in sealed high bid auctions. University of California, Los Angeles Discussion Paper 407 (1986)

McAfee, R.P., McMillan, J.: Auctions and bidding. Journal of Economic Literature 25, 699-738 (1987)

McAfee, R.P., McMillan, J.: Government procurement and international trade. Journal of International Economics 26, 291-308 (1989)

McAfee, R.P., McMillan, J.: Bidding rings. American Economic Review 82, 579-599 (1992)

Milgrom, P.R.: Rational expectations, information acquisition, and competitive bidding. Econometrica 49, 921-943 (1981)

Milgrom, P.R., Weber, R.J.: A theory of auctions and competitive bidding. Econometrica 50, 1089-1122 (1982a)

Milgrom, P.R., Weber, R.J.: The value of information in a sealed bid auction. Journal of Mathematical Economics 10, 105-114 (1982b)

Molnar, J., Virag, G.: Revenue maximizing auctions with market interaction and signaling. Economics Letters 99, 360-363 (2008)

Myerson, R.B.: Optimal auction design. Mathematics of Operations Research 6, 58-73 (1981)

Rezende, L.: Biased procurement auctions. Economic Theory (forthcoming)

Riley, J.G., Samuelson, W.F.: Optimal auctions. American Economic Review 71, 381-392 (1981)

Tschantz, S., Crooke, P., Froeb, L.: Mergers in first versus second price asymmetric auctions. Mimeo, Vanderbilt University, Owen Graduate School of Management (1997)

Waehrer, K.: Asymmetric private values auctions with application to joint bidding and mergers. International Journal of Industrial Organization 17, 437-452 (1999)

Waehrer, K., Perry, M.K.: The effects of mergers in open-auction markets, RAND Journal of Economics 34, 287-304 (2003)

Zheng, C.Z.: Optimal auction in a multidimensional world. Northwestern University, Center for Mathematical Studies in Economics and Management Science Discussion Paper 1282 (2000)