Private Value Perturbations and Informational Advantage in Common Value Auctions

31 Pages Posted: 11 Feb 2005

Date Written: January 2005

Abstract

We analyze the value of being better informed than one's rival in a two bidder, second price common value auction. Standard models of these auctions do not pin down relative bidding postures, making analysis difficult. We show that by adding small amounts of private value information, a unique equilibrium can be restored. Additional common value information affects a bidder's payoff both directly, by increasing his information rent, and indirectly, by shifting the relative bidding posture of his opponent. Although the latter effect need not be positive, we establish broad conditions under which bidders with more information do better than their rivals. We turn to information acquisition and release and show that the desire to influence relative bidding postures can lead sellers to create new information rents (by releasing information privately to only one bidder) and bidders to forego information rents (instead choosing to gather information that a rival already has).

Keywords: Common value auctions, differential information

JEL Classification: D00, D44, D82

Suggested Citation

Larson, Nathan, Private Value Perturbations and Informational Advantage in Common Value Auctions (January 2005). Available at SSRN: https://ssrn.com/abstract=665121 or http://dx.doi.org/10.2139/ssrn.665121

Nathan Larson (Contact Author)

American University ( email )

4400 Massachusetts Avenue, N.W.
Washington, DC 20016-8029
United States