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Interdependent value auctions with insider information: Theory and experiment

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  • Choi, Syngjoo
  • Guerra, José-Alberto
  • Kim, Jinwoo

Abstract

We develop a model of interdependent value auctions in which two types of bidders compete: insiders, who are perfectly informed about their value, and outsiders, who are informed only about the private component of their value. Because the bidding strategy of outsiders cannot efficiently adjust with that of insiders, the second-price auction is inefficient. The English auction has an equilibrium in which the information outsiders infer from the history of drop-out prices enables them to bid toward attaining efficiency. The presence of insiders has positive impacts on the seller's revenue. A laboratory experiment confirms key theoretical predictions, despite evidence of naive bidding.

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  • Choi, Syngjoo & Guerra, José-Alberto & Kim, Jinwoo, 2019. "Interdependent value auctions with insider information: Theory and experiment," Games and Economic Behavior, Elsevier, vol. 117(C), pages 218-237.
    • Handle: RePEc:eee:gamebe:v:117:y:2019:i:c:p:218-237
    DOI: 10.1016/j.geb.2019.06.007
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    2. Theo Offerman & Giorgia Romagnoli & Andreas Ziegler, 2022. "Why are open ascending auctions popular? The role of information aggregation and behavioral biases," Quantitative Economics, Econometric Society, vol. 13(2), pages 787-823, May.

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    More about this item

    Keywords

    Interdependent value auctions; Asymmetric information structure; Second-price auction; English auction; Experiment;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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