Ordinal Cheap Talk in Common Value Auctions

24 Pages Posted: 21 Feb 2003

See all articles by Archishman Chakraborty

Archishman Chakraborty

York University - Schulich School of Business

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance

Rick Harbaugh

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Indiana University - Department of Economics

Date Written: December 2002

Abstract

Sellers benefit on average from revealing information about their goods to buyers, but the incentive to exaggerate undermines the credibility of seller statements. When multiple goods are being auctioned, we show that ordinal cheap talk, which reveals a complete or partial ordering of the different goods by value, can be credible. Ordinal statements are not susceptible to exaggeration because they simultaneously reveal favorable information about some goods and unfavorable information about other goods. Any informative ordering increases revenues in accordance with the linkage principle, and the complete ordering is asymptotically revenue-equivalent to full revelation as the number of goods becomes large. These results provide a new explanation in addition to bundling, versioning, and complementarities for how a seller benefits from the sale of multiple goods.

Keywords: linkage principle, winner's curse, cheap talk

JEL Classification: D44, D82, L15

Suggested Citation

Chakraborty, Archishman and Gupta, Nandini and Harbaugh, Rick, Ordinal Cheap Talk in Common Value Auctions (December 2002). Claremont Economics Working Paper No. 2002-30. Available at SSRN: https://ssrn.com/abstract=364240 or http://dx.doi.org/10.2139/ssrn.364240

Archishman Chakraborty (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

HOME PAGE: http://www.yorku.ca/archish/

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3416 (Phone)
812-855-5875 (Fax)

Rick Harbaugh

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-2777 (Phone)
812-855-3354 (Fax)

HOME PAGE: http://www.bus.indiana.edu/riharbau/

Indiana University - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

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