Discussion Paper Details

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Title: First Price Auctions with General Information Structures: Implications for Bidding and Revenue

Author(s): Dirk Bergemann, Benjamin A Brooks and Stephen Morris

Publication Date: August 2015

Keyword(s): Bayes correlated equilibrium, common values, first price auctions, information structure, interdependent values, private values, revenue and welfare bounds

Programme Area(s): Industrial Organization

Abstract: This paper explores the consequences of information in sealed bid first price auctions. For a given symmetric and arbitrarily correlated prior distribution over valuations, we characterize the set of possible outcomes that can arise in a Bayesian equilibrium for some information structure. In particular, we characterize maximum and minimum revenue across all information structures when bidders may not know their own values, and maximum revenue when they do know their values. Revenue is maximized when buyers know who has the highest valuation, but the highest valuation buyer has partial information about others? values. Revenue is minimized when buyers are uncertain about whether they will win or lose and incentive constraints are binding for all upward bid deviations. We provide further analytic results on possible welfare outcomes and report computational methods which work when we do not have analytic solutions. Many of our results generalize to asymmetric value distributions. We apply these results to study how entry fees and reserve prices impact the welfare bounds.

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Bibliographic Reference

Bergemann, D, Brooks, B and Morris, S. 2015. 'First Price Auctions with General Information Structures: Implications for Bidding and Revenue'. London, Centre for Economic Policy Research.