The Effect of Bidders' Asymmetries on Expected Revenue in Auctions

33 Pages Posted: 12 Apr 2001

See all articles by Estelle Cantillon

Estelle Cantillon

Free University of Brussels (VUB/ULB) - ECARES; Centre for Economic Policy Research (CEPR)

Date Written: September 2006

Abstract

Bidders' asymmetries are widespread in auction markets. Yet, their impact on behavior and, ultimately, revenue and profits is still not well understood. This paper defines a natural benchmark auction environment to which to compare any private values auction with asymmetrically distributed valuations. The main result is that the expected revenue from the benchmark auction dominates that from the asymmetric auction, both in the first price auction and the second price auction. Moreover, for classes of distributions that lend themselves to a quasi-ordering of more or less asymmetric configurations, we prove that the expected revenue is lower the more asymmetric bidders are. These results formalize the idea that competition is reduced by bidders' asymmetries. Applications to merger analysis, joint bidding and investment are discussed.

Keywords: asymmetric auction, revenue

JEL Classification: D44

Suggested Citation

Cantillon, Estelle, The Effect of Bidders' Asymmetries on Expected Revenue in Auctions (September 2006). Strategy Unit Working Paper No. 1279, Available at SSRN: https://ssrn.com/abstract=264208

Estelle Cantillon (Contact Author)

Free University of Brussels (VUB/ULB) - ECARES ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
B-1050 Brussels
Belgium
+32 2 650 3840 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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