Auction Design with Advised Bidders
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 Englis...
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European Alliance for Innovation (EAI)
2016-12-01
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Online Access: | http://eudl.eu/doi/10.4108/eai.8-8-2015.2260860 |
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doaj-2c2a9a24378849daa610068a66eb9e812020-11-25T01:00:58ZengEuropean Alliance for Innovation (EAI)EAI Endorsed Transactions on Serious Games2034-88002016-12-0131010.4108/eai.8-8-2015.2260860Auction Design with Advised BiddersAndrey Malenko0Anton Tsoy1MIT Sloan School of Management, amalenko@mit.eduEIEFThis 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.http://eudl.eu/doi/10.4108/eai.8-8-2015.2260860auction designcheap-talkfull revelationenglish auctioncommunication |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Andrey Malenko Anton Tsoy |
spellingShingle |
Andrey Malenko Anton Tsoy Auction Design with Advised Bidders EAI Endorsed Transactions on Serious Games auction design cheap-talk full revelation english auction communication |
author_facet |
Andrey Malenko Anton Tsoy |
author_sort |
Andrey Malenko |
title |
Auction Design with Advised Bidders |
title_short |
Auction Design with Advised Bidders |
title_full |
Auction Design with Advised Bidders |
title_fullStr |
Auction Design with Advised Bidders |
title_full_unstemmed |
Auction Design with Advised Bidders |
title_sort |
auction design with advised bidders |
publisher |
European Alliance for Innovation (EAI) |
series |
EAI Endorsed Transactions on Serious Games |
issn |
2034-8800 |
publishDate |
2016-12-01 |
description |
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. |
topic |
auction design cheap-talk full revelation english auction communication |
url |
http://eudl.eu/doi/10.4108/eai.8-8-2015.2260860 |
work_keys_str_mv |
AT andreymalenko auctiondesignwithadvisedbidders AT antontsoy auctiondesignwithadvisedbidders |
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