Title

Extremal Information Structures in the First Price Auction

Author(s)

Dirk Bergemann Dirk Bergemann (Yale University)

Benjamin Brooks Benjamin Brooks (Princeton University)

Stephen Morris Stephen Morris (Princeton University)

Abstract

We study how the outcomes of a private-value first price auction can vary with bidders' information, for a fixed distribution of private values. In a two bidder, two value, setting, we characterize all combinations of bidder surplus and revenue that can arise, and identify the information structure that minimizes revenue. The extremal information structure that minimizes revenue entails each bidder observing a noisy and correlated signal about the other bidder's value.In the general environment with many bidders and many values, we characterize the minimum bidder surplus of each bidder and maximum revenue across all information structures. The extremal information structure that simultaneously attains these bounds entails an efficient allocation, bidders knowing whether they will win or lose, losers bidding their true value and winners being induced to bid high by partial information about the highest losing bid. Our analysis uses a linear algebraic characterization of equilibria across all information structures, and we report simulations of properties of the set of all equilibria.

Creation Date

2013-11

Section URL ID

Paper Number

055-2013

URL

http://detc.princeton.edu/wp-content/uploads/2016/11/wp055_2013_Bergemann_Brooks_Morris_Extremal-Information-Structures-in-the-First-Price-Auction.pdf

File Function

Jel

C72, D44, D82, D83

Keyword(s)

First Price Auction, Mechanism Design, Robust Predictions, Private Information, Bayes Correlated Equilibrium

Suppress

false

Series

10