Auction Design with Advised Bidders
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Author(s)
Tsoy, Anton
Malenko, Andrey
Date Issued
August 2015
Journal
Proceedings of the The Third Conference on Auctions, Market Mechanisms and Their Applications
Publisher
ACM
Citation
Malenko, Andrey, and Anton Tsoy. “Auction Design with Advised Bidders.” Proceedings of the The Third Conference on Auctions, Market Mechanisms and Their Applications, 8-9 August, 2015, Chicago, Illinois, USA, ACM, 2015.
Version
Author's final manuscript
Abstract
This paper studies efficient and optimal auction design where bidders do not know their values and solicit advice from informed but biased advisors via a cheap-talk game. When advisors are biased toward overbidding, we characterize efficient equilibria of static auctions and equilibria of the English auction under the NITS condition (Chen, Kartik and Sobel (2008)). In static auctions, advisors transmit a coarsening of their information and a version of the revenue equivalence holds. In contrast, in the English auction, information is transmitted perfectly from types in the bottom 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. The distinguishing feature of the English auction is that information can be transmitted over time and bidders cannot submit bids below the current price of the auction. This results in a higher efficiency due to better information transmission and allows the seller to extract additional profits from the overbidding bias of advisors. When advisors are biased toward underbidding, there is an equilibrium of the Dutch auction that is more efficient than any efficient equilibrium of any static auction, however, it can bring lower expected revenue. Keywords auction design, cheap-talk, full revelation, english auction, communication
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.4108/EAI.8-8-2015.2260860
