The Effect of Bidders' Asymmetries on Expected Revenue in Auctions

Estelle Cantillon

No 1279, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Bidders' asymmetries are widespread in auction markets. Yet, their impact on behavior and, ultimately, revenue and profits is still not well understood. In this paper, I define a natural benchmark auction environment to which to compare any private value auction with asymmetrically distributed valuations. I show that the expected revenue from the benchmark auction always dominates that from the asymmetric auction, both in the first price auction and the second price auction. These results formalize and make transparent the idea that competition is reduced by bidders' asymmetries. The paper also contributes to a better understanding of competition and the nature of rents in auction markets. Anonymity of the allocation mechanism seems to be an important factor.

Keywords: Auctions; asymmetries; anonymous mechanisms; benchmark; reduced competition (search for similar items in EconPapers)
JEL-codes: D40 D44 L13 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2000-10
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Published in Games and Economic Behavior (2008), 62: 1-25

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Related works:
Journal Article: The effect of bidders' asymmetries on expected revenue in auctions (2008)
Working Paper: The effect of bidders' asymmetries on expected revenue in auctions (2008)
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