Effects of Information Revelation Policies Under Cost Uncertainty

Karthik N. Kannan ()
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Karthik N. Kannan: Krannert School of Management, Purdue University, West Lafayette, Indiana 47907

Information Systems Research, 2012, vol. 23, issue 1, 75-92

Abstract: The paper presents insights regarding the key learning-related factors a buyer should consider when deciding the extent to which information about bids is revealed in a procurement auction context. It offers the insights by analyzing the following two first-price sealed-bid policies in a private-value sequential auction with no winner dropouts: (i) iis , where only the winner's bid is revealed, and (ii) cis , where all bids are revealed. Our analysis identifies two important learning effects---the extraction and the deception effects---as having significant welfare implications. Both these effects arise because of a bidder's desire to gain an informational advantage relative to his competitors, but their manifestations are different. The extraction effect occurs because of a bidder's incentive to learn about his competitors, and the deception effect is a consequence of the incentive to prevent an opponent from gaining the information. Both effects lead to higher bid prices, and either may be dominant from a procurer surplus standpoint. With the deception effect, social welfare can decrease even when the number of suppliers increases, a result that is counterintuitive. The paper also discusses how insights regarding the learning effects might apply to other policies.

Keywords: information revelation; electronic markets; economics of information systems; perfect Bayesian Nash equilibrium; auctions (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:orisre:v:23:y:2012:i:1:p:75-92

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