An Asymmetric Common-Value Auction Model

Donald B. Hausch

RAND Journal of Economics, 1987, vol. 18, issue 4, 611-621

Abstract: This article develops a model allowing asymmetric information between two bidders in an auction for a common-value object. It supposes that there is a common prior distribution on the object's value and that each bidder receives a private signal conditional on the object's unknown true value. Asymmetry comes about through a difference in the precision of the bidder's signals. Placing a restriction on the nature of this difference, I determine the equilibrium bidding strategies for the first-price and second-price auctions. The strategies are symmetric, and the second-price auction generates a higher seller's expected revenue, a result that extends the well-known revenue-ordering result of symmetric-information auctions. I do, however, provide an example to show that this ordering is not necessarily maintained in a less restricted asymmetric setting. Finally, another example illustrates that the seller may prefer that bidders be asymmetrically informed to releasing information that would reduce the asymmetry.

Date: 1987
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