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Information disclosure in optimal auctions

Juan-José Ganuza and Jose Penalva

International Journal of Industrial Organization, 2019, vol. 63, issue C, 460-479

Abstract: This paper analyzes a situation in which the seller controls the accuracy of what potential buyers learn about their valuation of a good to be sold. This setting is related to many real situations such as home sales, antique auctions, and digital platforms such as Google and Facebook selling online advertising slots. Two important questions arise: what is the optimal selling mechanism, and what is the optimal disclosure policy of the seller. Under the assumption of private values, a simple auction with a reserve price is the optimal mechanism. What we show is that the amount of (costly) information provided increases with the number of potential bidders when using the optimal mechanism and is greater than when the object is always sold. Because information changes the distribution of a bidder’s expected valuations, the optimal reserve price also changes, so that the number of bidders (indirectly) affects the reserve price. We show that as the number of bidders increases, the optimal reserve price becomes more restrictive.

Keywords: Optimal auction; Private values; Information disclosure and reserve price (search for similar items in EconPapers)
JEL-codes: C72 D44 D82 D83 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:indorg:v:63:y:2019:i:c:p:460-479