Auction Design with Advised Bidders
Abstract:
This paper studies efficient and optimal auction design wher e bidders do not know their values and solicit advice from informed but bia sed advisors via a cheap-talk game. When advisors are biased toward overbid ding, we characterize efficient equilibria of static auctions and equilibri a of the English auction under the NITS condition (Chen, Kartik and Sobel ( 2008)). In static auctions, advisors transmit a coarsening of their informa tion and a version of the revenue equivalence holds. In contrast, in the En glish auction, information is transmitted perfectly from types in the botto m of the distribution, and pooling happens only at the top. Under NITS, any equilibrium of the English auction dominates any efficient equilibrium of any static auction in terms of both efficiency and the seller’s revenue. Th e distinguishing feature of the English auction is that information can be transmitted over time and bidders cannot submit bids below the current pric e of the auction. This results in a higher efficiency due to better informa tion transmission and allows the seller to extract additional profits from the overbidding bias of advisors. We show that the gain in efficiency and r evenue from switching to the English auction from the second-price auction is qualitatively large for M&A deals. When advisors are biased toward under bidding, there is an equilibrium of the Dutch auction that is more efficien t than any efficient equilibrium of any static auction, however, it can bri ng lower expected revenue.
DTSTAMP:20260404T050400Z DTSTART:20150717T130000Z DTEND:20150717T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR