Discussion Paper Details

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Title: The Effect of Bidders' Asymmetries on Expected Revenues

Author(s): Estelle Cantillon

Publication Date: January 2001

Keyword(s): Anonymous Mechanisms, Asymmetries, Auctions, Benchmark and Reduced Competition

Programme Area(s): Industrial Organization

Abstract: Bidders' asymmetries are widespread in auction markets. Yet, their impact on behaviour and, ultimately, revenue and profits is still not well understood. In this Paper, I define a natural benchmark auction environment 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.

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Bibliographic Reference

Cantillon, E. 2001. 'The Effect of Bidders' Asymmetries on Expected Revenues'. London, Centre for Economic Policy Research.