Revealing Information in Auctions: The Optimal Auction Versus the Second-Price Auction

Abstract

We study the optimal information disclosure policy in the optimal auction and the second-price auction when the seller has information that additively adjusts the independent private values of the bidders. In this setting, information revelation could change the allocation of the good in both types of auctions. However, in the optimal auction, the change in allocation makes the revenue function convex in the additive adjustments, so the seller should always reveal information. In contrast, in the second-price auction, the change in allocation makes the revenue function non-convex, in which case the seller might benefit from withholding information.

Keywords: information disclosure, auctions, independent private value, convexity

JEL Classification: D44, D82