COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1423 MULTIDIMENSIONAL PRIVATE VALUE AUCTIONS Hanming Fang and Stephen Morris May 2003 We consider parametric examples of two-bidder private value auctions in which each bidder observes her own private valuation as well as noisy signals about her opponent’s private valuation. In such multidimensional private value auction environments, we show that the revenue equivalence between the first and second price auctions breaks down and there is no definite revenue ranking; while the second price auction is always efficient allocatively, the first price auction may be inefficient and the inefficiency may increase as the signal becomes more informative; equilibria may fail to exist for the first price auction. We also show that auction mechanisms provide different incentives for bidders to acquire costly information about opponents’ valuation. Keywords: Multidimensional auctions, Revenue equivalence, Allocative efficiency, Information acquisition JEL Classification: C70, D44, D82 |
