Selling to Advised Buyers
50 Pages Posted: 12 Dec 2015 Last revised: 22 Sep 2018
Date Written: September 4, 2018
In many cases, buyers are not informed about their valuations and rely on experts, who are informed but biased for overbidding. We study auction design when selling to such “advised buyers”. We show that a canonical dynamic auction, the English auction, has a natural equilibrium that outperforms standard static auctions in expected revenues and allocative efficiency. The ability to communicate as the auction proceeds allows for more informative communication and gives advisors the ability to persuade buyers into overbidding. The same outcome is the unique equilibrium of the English auction when bidders can commit to contracts with their advisors.
Keywords: auction design, mechanism design, communication, cheap talk
JEL Classification: D44, D47, D82
Suggested Citation: Suggested Citation