Market Selection and the Information Content of Prices
Econometrica · 2021 · Volume 89 · Issue 5
Abstract
We study information aggregation whennbidders choose, based on their private information, between two concurrent common-value auctions. There areksidentical objects on sale through a uniform-price auction in marketsand there are an additionalkrobjects on auction in marketr, which is identical to marketsexcept for a positive reserve price. The reserve price in marketrimplies that information is not aggregated in this market. Moreover, if the object-to-bidder ratio in marketsexceeds a certain cutoff, then information is not aggregated in marketseither. Conversely, if the object-to-bidder ratio is less than this cutoff, then information is aggregated in marketsas the market grows arbitrarily large. Our results demonstrate how frictions in one market can disrupt information aggregation in a linked, frictionless market because of the pattern of market selection by imperfectly informed bidders.
Keywords
Auctions, large markets, information aggregation
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