Preemption Through Non-Disclosure
40 Pages Posted: 30 May 2018 Last revised: 17 Jun 2018
Date Written: May 17, 2018
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: Suggested Citation