Should Auctions Be Transparent?

73 Pages Posted: 14 Nov 2010

See all articles by Dirk Bergemann

Dirk Bergemann

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

Johannes Horner

Yale University - Cowles Foundation

Multiple version iconThere are 4 versions of this paper

Date Written: September 2010

Abstract

We investigate the role of market transparency in repeated first-price auctions. We consider a setting with private and independent values across bidders. The values are assumed to be perfectly persistent over time.

We analyze the first-price auction under three distinct disclosure regimes regarding the bid and award history. Of particular interest is the minimal disclosure regime, in which each bidder only learns privately whether he won or lost the auction at the end of each round. In equilibrium, the winner of the initial auction lowers his bids over time, while losers keep their bids constant, in anticipation of the winner's lower future bids. This equilibrium is efficient, and all information is eventually revealed. Importantly, this disclosure regime does not give rise to pooling equilibria.

We contrast the minimal disclosure setting with the case in which all bids are public, and the case in which only the winner's bids are public. In these settings, an inefficient pooling equilibrium with low revenues always exists with a sufficiently large number of bidders.

Keywords: First Price Auction, Information Revelation, Private Bids, Repeated Auctions

JEL Classification: D44, D82, D83

Suggested Citation

Bergemann, Dirk and Horner, Johannes, Should Auctions Be Transparent? (September 2010). CEPR Discussion Paper No. DP7989. Available at SSRN: https://ssrn.com/abstract=1707859

Dirk Bergemann (Contact Author)

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

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

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Johannes Horner

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

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