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Equilibria in Second Price Auctions with Information Acquisition

Li, Shengyu and Tian, Guoqiang (2008): Equilibria in Second Price Auctions with Information Acquisition.

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This paper studies equilibria in second price auctions with information acquisition in an independent private value setting. We focus on the existence and uniqueness of equilibrium in the information acquisition stage for both homogenous and heterogenous bidders. It is shown that, when the relative probability gain of information acquisition is increasing, there always exists an equilibrium and further it is symmetric and unique when bidders are homogenous. Moreover, we show that different type of bidders must choose different information levels, and further the advantaged groups with lower marginal information cost have stronger incentive to acquire information. An illustrative example with two bidders and Gaussian specification is presented to provide intuition and implications on equilibrium behavior of bidders.

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