DP2675 The Effect of Bidders' Asymmetries on Expected Revenues
|Publication Date:||January 2001|
|Keyword(s):||Anonymous Mechanisms, Asymmetries, Auctions, Benchmark, Reduced Competition|
|JEL(s):||D43, D44, L13|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2675|
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.