Preemption Through Non-Disclosure

40 Pages Posted: 30 May 2018 Last revised: 17 Jun 2018

Jing Li

The University of Hong Kong - School of Business

Tingjun Liu

The University of Hong Kong

Ran Zhao

Chapman University

Date Written: May 17, 2018

Abstract

An informed bidder can voluntarily disclose his private information on the value of an auctioned asset to rival bidders and the seller. We examine the informed bidder's optimal disclosure policy and the resulting consequences on the seller's payoff. We show that the informed bidder strategically withholds information to create a winner's curse for rival bidders, which has a preemptive effect on the rival's participation. Taking into account this strategic response, we show that increased competition among bidders may reduce the seller's payoff a surprising result that is contrary to the common belief that bidder competition generally increases the seller's payoff.

Keywords: asymmetric auctions, voluntary disclosure, preemption

JEL Classification: D44, D82

Suggested Citation

Li, Jing and Liu, Tingjun and Zhao, Ran, Preemption Through Non-Disclosure (May 17, 2018). Available at SSRN: https://ssrn.com/abstract=3180300 or http://dx.doi.org/10.2139/ssrn.3180300

Jing Li

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China

Tingjun Liu

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Ran Zhao (Contact Author)

Chapman University ( email )

Orange, CA 92866
United States

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