DOCSLIB.ORG

Limitations of the Vickrey Auction in Computational Multiagent Systems

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Limitations of the Vickrey Auction in Computational Multiagent Systems From: Proceedings of the Second International Conference on Multiagent Systems. Copyright © 1996, AAAI (www.aaai.org). All rights reserved. Limitations of the Vickrey Auction in Computational Multiagent Systems Tuomas Sandholm * sandholm~cs.wustl.edu Washington University Department of Computer Science One Brookings Drive, Campus Box 1045 St. Louis, MO 63130-4899 Abstract 1 Introduction Auctionsprovide an efficient distributed Auctions provide efficient, distributed and autonomy mechanism for solving problems such as task preserving ways of solving task and resource allocation and resource allocation in muitiagent sys- problems in computational multiagent systems [16; 21; tems. In the Vickrey auction--which has 5; 24; 2; 8]. Auctions can be used amongcooperative been widely advocated for automated auc- agents, but they also work in open systems consisting tions [22; 1; 3; 5; 24; 2; 8; 9; 20; 13J--the of self-interested agents. They can be analyzed no~na- best bid wins the auction, but at the second tiuel~ what strategies are self-interested agents best best price. In certain settings this promotes off using (and therefore will use), and will desirable truthful bidding and avoids counterspecula- social outcomes--e.g, efi~cient allocation--still follow. tion. This paper analyses the circumstances The goal is to design the protocoLs (mechanisms) whenthis protocol is appropriate, and expli- the interaction so that desirable soda] outcomes follow cates the desirable properties and lack thereof even though each agent acts based on self-interest. in varied settings. The first part of the pa- Auction theory analyzes protocols and agents’ per discusses knowndeficiencies of the Vick- strategies in auctions. An auction consists of an auc- rey auction: bidder collusion, a lying auction- tioneer and potential bidders I. Auctions are usually eer, promotion of lying in non-private-value discussed regarding situations where the auctioneer auctions, lower revenue than alternative pro- wants to sell an item and get the highest possible pay- tocols, and the necessity to reveal sensitive ment for it while each bidder wants to acquire the item information. The second part of the paper at the lowest possible price. However, settings where presents our results regarding new limitations the auctioneer wants to subcontract out a task at the of the protocol, which arise especially among lowest possible price and each bidder wants to handle computational agents. These include ineffi- the task at the highest possible payment, are totally cient allocation and lying in sequential suc- analogous. tions of interrelated items, untruthful bid- There are three qualitatively different auction set- ding whena risk averse agent has local uncer- tings depending on how an agent’s value of the item tainty, and the need for counterspeculation is formed. In private value auctions, the value of the to make deliberation control (or information good depends only on the agent’s own preferences. An gathering) decisions when an agent has local example is auctioning off a cake that the winning bid- uncertainty. der will eat. The key is that the winning bidder will not resell the item in which case the value would de- *This material is based upon work supported by the pend on other agents’ valuations. On the other hand, National Science Foundation under Grant No. ]RI- in commonvalue auctions, an agent’s value of an item 9523419. Additional support came from a University of Massachusetts at Amherst Graduate School Fellow- depends entirely on other agents’ values of it, which ship. Also supported by the Technical Research Cen- are identical to the agent’s by symmetryof this cri- tre of Finland, Finnish Culture Foundation, Finnish Sci- terion. For example, auctioning treasury bills fulfills ence Academy, Leo and Regina Wainstein Foundation, this criterion. Nobodyinherently prefers having the Jenny and Antti Wihuri Foundation, Honkanen Founda- bills, and the value of the bill comesentirely from re- tion, Ella and George Ehrnrooth Foundation, Finnish In- selling possibilities. In correlated value auctions, an formation Technology Research Foundation, Transporta- tion EconomicSociety, and Thanks to Scandinavia Foun- 1Thereare also auctions with multlple bid takers, i.e. dation. auctioneers. Sandholm 299 From: Proceedings of the Second International Conference on Multiagent Systems. Copyright © 1996, AAAI (www.aaai.org). All rights reserved. agent’s value depends partly on its own preferences egy result of Vickrey auctions means that an agent is and partly on others’ values. For example, an auction best off bidding truthfully no matter what the other in a task contracting setting fulfills this criterion. An bidders are like: what are their capabilities, operating agent mayhandle a task itself in which case the agent’s environments, bidding plans, etc. This has two desir- local concerns define the cost of handling the task. On able sides. First, the agents reveal their preferences the other hand, the agent can recontract out the task truthfully which allows globally efficient decisions to in which case the cost depends solely on other agents’ be made. Second, the agents need not waste effort in valuations. Next, I discuss four different auction pro- counterspeculating other agents, because they do not tocols [12]. matter in making the bidding decision. In the English (first-price open-cry) auction, each Vickrey auctions have been widely advocated and bidder is free to raise his bid. Whenno bidder is will- adopted for use in computational multiagent sys- ing to raise anymore, the auction ends, and the highest tems [22; 1; 3; 5; 24; 2; 8; 9; 20; 13]. For example, bidder wins the item at the price of his bid. An agent’s versions of the Vickrey auction have been used to allo- strategy is a series of bids as a function of his private cate computation resources in operating systems [24; value, his prior estimates of other bidder’s valuations, 2], to allocate bandwidth in computer networks ’L22; and the past bids of others. In private value English 8; 9; 20], and to computationally control building en- auctions, an agent’s dominant strategy is to always bid vironments [5]. On the other hand, Vickrey auctions a small amount more than the current highest bid, and have not been widely adopted in auctions among hu- stop whenhis private value price is reached. In corre- mans [14; 15] even though the protocol was laid out lated value auctions the rules are often varied to make 25 years ago [23]. the auctioneer increase the price at a constant rate There are severe limitations to the applicability of or at a rate he thinks appropriate. Secondly, some- the Vickrey auction protocol. This paper explores times open-ezit is used where a bidder has to openly these limitations. It is important to understand thcsc declare exiting without a re-entering possibility. This limitations in order not to ascribe desirable character- provides the other bidders more information regarding istics to a protocol when the protocol really does not the agent’s valuation. guarantee them. On the other hand, the Vickrey auc- In the first-price sealed-bid auction, each bidder sub- tion protocol may well be a good choice in situations mits one bid without knowing the others’ bids. The that do not exceed the applicability limits. highest bidder wins the item and pays the amount of The first part of the paper details the knownprob- his bid. An a8ent’s strategy is his bid as a function of his private value and prior beliefs of others’ valuations. lems regarding the Vickrey auction. These problems In general there is no dominant strategy for acting in have been discovered by auction theorists and practi- this auction. With common knowledge assumptions tioners, and they have led to the lack of deployment regarding the probability distributions of the agents’ of Vickrey auctions among humans. The problems in- values, it is possible to determine Nash equilibrium clude bidder collusion (Section 2), an untruthful auc- strategies for the agents [12]. tioneer (Section 3), lying in non-private-value auctions In the Dutch (descending) auction, the seller contin- (Section 4), lower revenue than alternative protocols uously lowers the price until one of the bidders takes (Section 5), and the necessity to reveal sensitive in- the item at the current price. The Dutch auction formation (Section 6). The wide application plans is strategically equivalent to the first-price sealed-bid Vickrey auctions in computational multiagent systems auction, because in both games, an agent’s bid matters suggest that these limitations may have been forgot- only if it is the highest, and no relevant information is ten. The first part of the paper serves as a reminder. revealed during the auction process. The second part of the paper presents our results re- In the Vickrey (second-price sealed-bid) auction, garding new limitations of the Vickrey auction proto- each bidder submits one bid without knowing the oth- col. The settings that suffer from these new problems ers’ bids. The highest bidder wins, but at the price of arise especially among computational agents. The the second highest bid [23; 11; 12; 7; 4]. An agent’s newly discovered problems include inefficient alloca- strategy is his bid as a function of his private value tion and lying in auctions of interrelated items (Sec- and prior beliefs of others’ valuations. The dominant tion 7), untruthful bidding when an agent has local strategy in private value Vickrey auctions is to bid uncertainty (Section 8), and the need for counterspecu- one’s true valuation. If an agent bids more than that, lation whenan agent has local uncertainty (Section 9). and the increment made the difference between win- ning or not, he will end up with a loss if he wins. If duce the same allocation at the sameprices. Onthe other he bids less, there is a smaller chance of winning, but hand, in correlated value auctions, the bids of other agents the winning price is unaffected 2.
Load more

Recommended publications
  • Putting Auction Theory to Work
    Putting Auction Theory to Work Paul Milgrom With a Foreword by Evan Kwerel © 2003 “In Paul Milgrom's hands, auction theory has become the great culmination of game theory and economics of information. Here elegant mathematics meets practical applications and yields deep insights into the general theory of markets. Milgrom's book will be the definitive reference in auction theory for decades to come.” —Roger Myerson, W.C.Norby Professor of Economics, University of Chicago “Market design is one of the most exciting developments in contemporary economics and game theory, and who can resist a master class from one of the giants of the field?” —Alvin Roth, George Gund Professor of Economics and Business, Harvard University “Paul Milgrom has had an enormous influence on the most important recent application of auction theory for the same reason you will want to read this book – clarity of thought and expression.” —Evan Kwerel, Federal Communications Commission, from the Foreword For Robert Wilson Foreword to Putting Auction Theory to Work Paul Milgrom has had an enormous influence on the most important recent application of auction theory for the same reason you will want to read this book – clarity of thought and expression. In August 1993, President Clinton signed legislation granting the Federal Communications Commission the authority to auction spectrum licenses and requiring it to begin the first auction within a year. With no prior auction experience and a tight deadline, the normal bureaucratic behavior would have been to adopt a “tried and true” auction design. But in 1993 there was no tried and true method appropriate for the circumstances – multiple licenses with potentially highly interdependent values.
    [Show full text]
  • Lecture Notes
    601.436/636 Algorithmic Game Theory Lecturer: Michael Dinitz Topic: Online Auctions Date: 4/28/20 Scribe: Michael Dinitz 24.1 Introduction So far all of our mechanism have been \one-shot": we run an auction by soliciting bids and then deciding on an outcome and prices. This is intuitively a pretty good model of what we think of as an \auction". But let's think of another setting: we're selling items in a store. Then players will enter our store, make us an offer, and leave the store. Clearly if we sell an item to a player then we cannot later sell the same item to someone else, and if a player leaves the store then we cannot afterwards sell them the item. So our decisions are irrevocable. This is a classical setting for online algorithms, so today we'll be considering online mechanisms which combine online algorithms with incentives. 24.2 Example Suppose that we're selling two identical items. Each bidder wants one item (they don't care which) and has a valuation for how much they value an item (the same value for both, since they're identical), but also has an arrival and departure time. Suppose that there are three bidders. Bidder 1 has a valuation of 100, arrival time of noon (12pm), and departure time of 2pm. Bidder 2 has valuation 80, arrival time of noon, and departure time of 2pm. Bidder 3 has valuation of 60, arrival time of 1pm, and departure time of 2pm. If we were in the old setting, without arrival and departure times, it's pretty easy to use VCG to figure out what to do.
    [Show full text]
  • English Versus Vickrey Auctions with Loss Averse Bidders
    English versus Vickrey Auctions with Loss Averse Bidders Jonas von Wangenheim School of Business & Economics Discussion Paper Economics 2019/1 English versus Vickrey Auctions with Loss Averse Bidders∗ Jonas von Wangenheimyz December 19, 2018 Abstract Evidence suggests that people evaluate outcomes relative to expecta- tions. I analyze this expectation-based loss aversion [K}oszegiand Rabin (2006, 2009)] in the context of dynamic and static auctions, where the ref- erence point is given by the (endogenous) equilibrium outcome. If agents update their reference point during the auction, the arrival of informa- tion crucially affects equilibrium behavior. Consequently, I show that| even with independent private values|the Vickrey auction yields strictly higher revenue than the English auction, violating the well known revenue equivalence. Thus, dynamic loss aversion offers a novel explanation for empirically observed differences between these auction formats. Keywords: Vickrey auction, English auction, expectation-based loss aver- sion, revenue equivalence, dynamic loss aversion, personal equilibrium JEL classification: D03, D44 ∗I thank Yves Breitmoser, Fran¸coiseForges, Matthias Hammer, Paul Heidhues, Radosveta Ivanova-Stenzel, Johannes Johnen, Thomas Mariotti, Antonio Rosato, Thomas Schacherer, Ran Spiegler, Roland Strausz, and Georg Weizs¨acker for helpful comments, as well as participants at the 11th World Congress of the Econometric Society (Montreal), the 2015 EEA conference (Mannheim), the Applied Theory Workshop at Toulouse School of Economics, the 2016 EARIE conference (Lisbon), the CRC conference in Berlin, the ZEW Research Seminar, and the 2017 Annual Conference of the Verein f¨urSocialpolitik (Vienna). I gratefully acknowledge financial support of the German Research Foundation through CRC TRR 190 and RTG 1659.
    [Show full text]
  • Spectrum Auctions from the Perspective of Matching
    Spectrum Auctions from the Perspective of Matching Paul Milgrom and Andrew Vogt May 5, 2021 1 Introduction In July 1994, the United States Federal Communications Commission (FCC) conducted the first economist-designed auction for radio spectrum licenses. In the years since, governments worldwide have come to rely on auction mecha- nisms to allocate { and reallocate { rights to use electromagnetic frequencies. Over the same period, novel uses for spectrum have dramatically increased both the demand for licenses and auction prices, drawing continued attention to the nuances of spectrum markets and driving the development of spectrum auction design. In August 2017, the FCC completed the Broadcast Incentive Auction, a two-sided repurposing of an endogenously-determined quantity of spectrum that ranks among the most complex feats of economic engineering ever under- taken. The next generations of mobile telecommunications are poised to extend this growth, and to demand further innovation in the markets and algorithms that are used to assign spectrum licenses. What does all of this have to do with matching theory? Spectrum auctions differ from canonical matching problems in meaningful ways. Market designers often emphasize that a key element of matching markets is the presence of preferences on both sides of the market. In a marriage, for example, it is not enough that you choose your spouse; your spouse must also choose you. This two-sided choice structure applies also to matches between students and schools and between firms and workers, but not to matches between telecommunications companies and radio spectrum licenses. It is a different matching element that is often critically important in ra- dio spectrum auctions.
    [Show full text]
  • The Ability of Dutch Foreclosure Auctions in Maximizing Seller Revenue
    The ability of Dutch foreclosure auctions in maximizing seller revenue Why Dutch foreclosure auction prices fall short of the market price Martijn Duijster 0475211 Group 2 Finance, semester 2, 2013-2014 17-7-2014 Bachelor thesis Economics and Business - specialization Finance and Organization Sander Onderstal Faculty of Economics and Business University of Amsterdam Index Abstract 3 1. Introduction 3 2. Dutch real estate auctions 4 3. Literature review 6 3.1. Types of auctions 6 3.2. The revenue equivalence results 8 3.3. Violations of the revenue equivalence result assumption 8 3.3.1. Information asymmetry 9 3.3.2. Competition 10 3.3.3. Bidder affiliation and the winner’s curse 11 4. Hypotheses 12 5. Research method 13 6. Results 15 6.1.. Explanation of the results 17 6.1.1. Information asymmetry 17 6.1.2. Competition 18 6.1.3 Solutions to improve competition 18 6.1.4. Transaction costs 19 6.1.5 Conflicts of interest between seller and owner 21 7. Conclusion 22 References 24 Appendices 26 2 Abstract The revenues in Dutch foreclosure auctions are compared to the market values of the properties. The discount rate is calculated which states the difference between the auction price and the market price. Foreclosure auctions in the Netherlands fail to receive an auction price close to the market price; the average discount rate with auction cost included in the auction price is about 20% and the discount rate when auction costs are excluded is about 27%. Asymmetric information, lack of competition, transaction costs and conflicts of interest may be attributable to this price gap.
    [Show full text]
  • Perspectives on the December 2019 Auction of Numbers in the 833 Numbering Plan Area
    Perspectives on the December 2019 Auction of Numbers in the 833 Numbering Plan Area Report to the FCC of the NANC Toll Free Assignment Modernization (TFAM) Work Group July 14, 2020 Report to the NANC of the TFAM Working Group Perspectives on the December 2019 833 Auction July 14, 2020 Table of Contents Perspectives on the December 2019 Auction of Numbers in the 833 Numbering Plan Area ................................................. 1 Assignment ..................................................................................................................................... 1 Background ..................................................................................................................................... 3 Approach ......................................................................................................................................... 4 Resources Used ............................................................................................................................... 5 Deliberation Process ....................................................................................................................... 6 Issue Group A: Perspectives on Education and Outreach, the Application Process, and Up-front Payments ......................................................................................................................................... 7 Issue 2: Evaluate the education and outreach efforts undertaken throughout the 833 Auction process......................................................................................................................................
    [Show full text]
  • Auction Theory
    Auction Theory Jonathan Levin October 2004 Our next topic is auctions. Our objective will be to cover a few of the main ideas and highlights. Auction theory can be approached from different angles – from the perspective of game theory (auctions are bayesian games of incomplete information), contract or mechanism design theory (auctions are allocation mechanisms), market microstructure (auctions are models of price formation), as well as in the context of different applications (procure- ment, patent licensing, public finance, etc.). We’re going to take a relatively game-theoretic approach, but some of this richness should be evident. 1 The Independent Private Value (IPV) Model 1.1 A Model The basic auction environment consists of: Bidders i =1,...,n • Oneobjecttobesold • Bidder i observes a “signal” Si F ( ), with typical realization si • [s, s], and assume F is continuous.∼ · ∈ Bidders’ signals S1,...,Sn are independent. • Bidder i’s value vi(si)=si. • Given this basic set-up, specifying a set of auction rules will give rise to a game between the bidders. Before going on, observe two features of the model that turn out to be important. First, bidder i’s information (her signal) is independent of bidder j’s information. Second, bidder i’s value is independent of bidder j’s information – so bidder j’s information is private in the sense that it doesn’t affect anyone else’s valuation. 1 1.2 Vickrey (Second-Price) Auction In a Vickrey, or second price, auction, bidders are asked to submit sealed bids b1,...,bn. The bidder who submits the highest bid is awarded the object, and pays the amount of the second highest bid.
    [Show full text]
  • English and Vickrey Auctions
    CHAPTER ONE English and Vickrey Auctions I describe a bit of the history of auctions, the two pairs of standard auction forms, and the ideas of dominance and strategic equivalence. 1.1 Auctions It is hard to imagine modern civilization without buying and selling, which make possible the division of labor and its consequent wealth (Smith, 1776). For many common and relatively inexpensive commodi­ ties, the usual and convenient practice at the retail level, in the West anyway, is simply for the seller to post a take-it-or-leave-it price, and for the prospective buyer to choose what to buy and where to buy it, perhaps shopping for favorable prices. I haven’t tried haggling over price at a Wal-Mart, but I can’t imagine it would get me very far. For some big-ticket items, however, like houses and cars, haggling and counteroffers are expected, even in polite society, and bargaining can be extended over many rounds. In some cultures, haggling is the rule for almost all purchases. A third possibility, our subject here, is the auction, where many prospective buyers compete for the opportunity to purchase items, either simultaneously, or over an extended period of time. The main attraction of the auction is that it can be used to sell things with more or less uncertain market value, like a tractor in a farmer’s estate, a manufacturer’s overrun of shampoo, or the final working copy of Beethoven’s score for his Ninth Symphony (see fig. 1.1). It thus promises to fetch as high a price as possible for the seller, while at the same time offering to the buyer the prospect of buying items at bargain prices, or perhaps buying items that would be difficult to buy in any other way.
    [Show full text]
  • Package Auctions and Exchanges Paul Milgrom1 Revised Version: November 2006
    Based on the Fisher-Schultz Lecture Econometric Society European Meeting August, 2004 Package Auctions and Exchanges Paul Milgrom1 Revised Version: November 2006 I. Introduction This lecture reports on the state of auction and exchange design for a class of challenging resource allocation problems—package allocation problems—that are common in both the private and public sectors of the economy. The class includes problems in which the goods to be traded are discrete and for which some agents might wish to acquire several items. It includes both problems in which the bidders are buyers and the seller may have some flexibility about what to sell and ones in which the bidders are sellers whose bids may specify not merely prices for various packages but also the attributes of the goods offered. Packages and attributes can interact in complicated ways in the buyer’s valuations. In short, this is about resource allocation without some of the simplifying assumptions that are traditionally made for neoclassical economic analysis. Most of the known results, and most of my attention in this paper, focus on the special case in which one party—a buyer or a seller—is passive and receives the residual. This is the auction design problem. Economists working in the tradition of Walras have often approached auctions differently, as a means for discovering market-clearing prices, but that approach is not especially helpful for the problems studied here. For the package allocation problem, market-clearing prices cannot be guaranteed to exist except when goods are substitutes for all participants. The non- existence of market-clearing prices poses a definitional problem for public sector sales in which 1 This paper has benefited from the suggestions of many people.
    [Show full text]
  • An Experiment for the Vickrey Auction
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Masuda, Takehito; Sakai, Toyataka; Serizawa, Shigehiro; Wakayama, Takuma Working Paper A strategy-proof mechanism should be announced to be strategy-proof: An experiment for the Vickrey auction ISER Discussion Paper, No. 1048 Provided in Cooperation with: The Institute of Social and Economic Research (ISER), Osaka University Suggested Citation: Masuda, Takehito; Sakai, Toyataka; Serizawa, Shigehiro; Wakayama, Takuma (2019) : A strategy-proof mechanism should be announced to be strategy-proof: An experiment for the Vickrey auction, ISER Discussion Paper, No. 1048, Osaka University, Institute of Social and Economic Research (ISER), Osaka This Version is available at: http://hdl.handle.net/10419/230455 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence.
    [Show full text]
  • NTC2014-SU-R-15 Mecit Cetin.Pdf
    Project ID: NTC2014-SU-R-15 OPEN TOLL LANES IN A CONNECTED VEHICLE ENVIRONMENT DEVELOPMENT OF NEW PRICING STRATEGIES FOR A HIGHLY DYNAMIC AND DISTRIBUTED SYSTEM Final Report by Dr. Mecit Cetin [email protected] (757) 683-6700 Old Dominion University Dr. Andrew Collins Gulsevi Basar Erika Frydenlund Dr. R. Michael Robinson Old Dominion University for National Transportation Center at Maryland (NTC@Maryland) 1124 Glenn Martin Hall University of Maryland College Park, MD 20742 February, 2015 ACKNOWLEDGEMENTS This project was funded by the National Transportation Center @ Maryland (NTC@Maryland), one of the five National Centers that were selected in this nationwide competition, by the Office of the Assistant Secretary for Research and Technology (OST-R), U.S. Department of Transportation (US DOT). DISCLAIMER The contents of this report reflect the views of the authors, who are solely responsible for the facts and the accuracy of the material and information presented herein. This document is disseminated under the sponsorship of the U.S. Department of Transportation University Transportation Centers Program in the interest of information exchange. The U.S. Government assumes no liability for the contents or use thereof. The contents do not necessarily reflect the official views of the U.S. Government. This report does not constitute a standard, specification, or regulation. iii TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................1 1.0 INTRODUCTION .........................................................................................................3
    [Show full text]
  • Competitive Bidding in Auctions with Private and Common Values
    TI 2000-044/1 Tinbergen Institute Discussion Paper Competitive Bidding in Auctions with Private and Common Values Jacob K. Goeree Theo Offerman Tinbergen Institute The Tinbergen Institute is the institute for economic research of the Erasmus Universiteit Rotterdam, Universiteit van Amsterdam and Vrije Universiteit Amsterdam. Tinbergen Institute Amsterdam Keizersgracht 482 1017 EG Amsterdam The Netherlands Tel.: +31.(0)20.5513500 Fax: +31.(0)20.5513555 Tinbergen Institute Rotterdam Burg. Oudlaan 50 3062 PA Rotterdam The Netherlands Tel.: +31.(0)10.4088900 Fax: +31.(0)10.4089031 Most TI discussion papers can be downloaded at http://www.tinbergen.nl Competitive Bidding in Auctions with Private and Common Values Jacob K. Goeree and Theo Offerman* November 1999 ABSTRACT The objects for sale in most auctions display both private and common value characteristics. This salient feature of many real-world auctions has not yet been incorporated into a strategic analysis of equilibrium bidding behavior. This paper reports such an analysis in the context of a stylized model in which bidders receive a private value signal and an independent common value signal. We show that more uncertainty about the common value results in lower efficiency and higher profits for the winning bidder. Information provided by the auctioneer decreases uncertainty, which improves efficiency and increases the seller’s revenue. These positive effects of public information disclosure are stronger the more precise the information. Efficiency and revenues are also higher when more bidders enter the auction. Since our model nests both the private and common value case it may lead to an improved specification of empirical models of auctions.
    [Show full text]