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Common Value Allocation Mechanisms with Private Information: Lotteries or Auctions?

Author

Listed:
  • Alexander Matros

    (Darla Moore School of Business, University of South Carolina)

  • Alex Possajennikov

    (Department of Economics, University of Nottingham)

Abstract

We consider mechanisms for allocating a common-value prize between two players in an incomplete information setting. In this setting, each player receives an independent private signal about the prize value. The signals are from a discrete distribution and the value is increasing in both signals. First, we characterize symmetric equilibria in four mechanisms: a lottery; and Â…rst-price, second-price, and all-pay auctions. Second, we establish revenue equivalence of these auction mechanisms in this setting. Third, we describe conditions under which the expected revenue is higher in the lottery than in any of the auctions. Finally, we identify an optimal mechanism and its implementation by means of reserve prices in lottery and auction mechanisms.

Suggested Citation

  • Alexander Matros & Alex Possajennikov, 2014. "Common Value Allocation Mechanisms with Private Information: Lotteries or Auctions?," Discussion Papers 2014-07, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Handle: RePEc:not:notcdx:2014-07
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    References listed on IDEAS

    as
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    Keywords

    common value; contests; auctions;
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