Common Value Auctions with Insider Information
Econometrica · 1999 · Volume 67 · Issue 5
Abstract
Bidding is studied in first-price common value auctions where aninsideris better informed than other bidders (outsiders) about the value of the item. With inexperienced bidders, having an insider does not materially reduce the severity of the winner's curse compared to auctions with asymmetric information structure(SIS). In contrast, super-experienced bidders, who have largely overcome the winner's curse, satisfy the comparative static predictions of equilibrium bidding theory: (i) average seller's revenue islargerwith an insider than in SIS auctions, (ii) insiders make substantially greater profits, conditional on winning, than outsiders, and (iii) insiders increase their bids in response to more rivals. Further, changes in insiders' bids are consistent with directional learning theory (Selten and Buchta (1994)).
Keywords
Common value auctions, asymmetric information structure, winner's curse, learning.
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