Auction and the Informed Seller Problem

Abstract

A seller possessing private information about the quality of a good attempts to sell it through a second-price auction with announced reserve price. The choice of a reserve price transmits information to the buyers. We characterize the equilibria with monotone beliefs of the resulting signalling game and show that they lead to a reduced probability of selling the good compared to the symmetric information situation. We compare the unique separating equilibrium of this signalling game to the equilibrium of a screening game in which an uninformed monopoly broker chooses the trading mechanism. We show that the ex-ante expected probability of trade may be larger with a monopoly broker, as well as the ex-ante total expected surplus.

Keywords: Signalling, Auctions, Intermediaries

JEL Classification: D44, D82