Information Acquisition in Interdependent Value Auctions

39 Pages Posted: 24 Jul 2007

See all articles by Dirk Bergemann

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Juuso Valimaki

Helsinki School of Economics; University of Southampton - Division of Economics

Xianwen Shi

University of Toronto - Department of Economics

Date Written: July 2007

Abstract

We consider an auction environment with interdependent values. Each bidder can learn her payoff type through costly information acquisition. We contrast the socially optimal decision to acquire information with the equilibrium solution in which each agent has to privately bear the cost of information acquisition.

In the context of the generalized Vickrey-Clarke-Groves mechanism, we establish that the equilibrium level exceeds the socially optimal level of information with positive interdependence. The individual decisions to acquire information are strategic substitutes. The difference between the equilibrium and the efficient level of information acquisition is increasing in the interdependence of the bidders' valuations and decreasing in the number of informed bidders.

Keywords: Vickrey-Clarke-Groves mechanism, Information acquisition, Strategic substitutes, Informational efficiency

JEL Classification: C72, C73, D43, D83

Suggested Citation

Bergemann, Dirk and Valimaki, Juuso and Shi, Xianwen, Information Acquisition in Interdependent Value Auctions (July 2007). Cowles Foundation Discussion Paper No. 1619; Yale Economics Department Working Paper No. 25. Available at SSRN: https://ssrn.com/abstract=1002365

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Juuso Valimaki

Helsinki School of Economics ( email )

P.O. Box 21210
Helsinki 00100, 00101
Finland

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 23 8059 3263 (Phone)

Xianwen Shi

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

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