Working Paper: CEPR ID: DP2675
Authors: Estelle Cantillon
Abstract: Bidders' asymmetries are widespread in auction markets. Yet, their impact on behaviour and, ultimately, revenue and profits is still not well understood. In this Paper, I define a natural benchmark auction environment to compare any private value auction with asymmetrically distributed valuations. I show that the expected revenue from the benchmark auction always dominates that from the asymmetric auction, both in the first price auction and the second price auction. These results formalize and make transparent the idea that competition is reduced by bidders' asymmetries. The paper also contributes to a better understanding of competition and the nature of rents in auction markets. Anonymity of the allocation mechanism seems to be an important factor.
Keywords: anonymous mechanisms; asymmetries; auctions; benchmark; reduced competition
JEL Codes: D43; D44; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| expected revenue from benchmark auction (D44) | expected revenue from asymmetric auction (D44) |
| bidders' asymmetries (D44) | competition (L13) |
| competition (L13) | expected revenue for auctioneer (D44) |
| bidders' asymmetries (D44) | expected revenue for auctioneer (D44) |
| bidders' asymmetries (D44) | expected revenue for bidders (D44) |
| bidders' asymmetries (D44) | efficiency in first-price auctions (D44) |