Auction and the informed seller problem

A seller possessing private information about the quality of a good attempts to sell it through a second-price auction with announced reserve price. The choice of a reserve price transmits information to the buyers. We compare the outcome of a game where the seller runs himself the auction (signaling) and a game where a monopoly broker chooses the trade mechanism (screening). For the former case, we characterize the equilibria of the resulting signaling game and show that they lead to reduced levels of sale compared to the symmetric situation. We compare the unique separating equilibrium with the outcome that would be chosen by the monopoly broker. The ex-ante expected probability of trade may be larger with a monopoly broker, as well as the ex-ante total expected surplus. ∗We wish to thank Bruno Biais, Bernard Caillaud, David Martimort, Benny Moldovanu and JeanCharles Rochet, as well as seminar participants at Toulouse University, for insighful comments. †University of Toulouse (GREMAQ and IDEI), 21 Allée de Brienne, 31000 Toulouse, France. Email: [email protected]. ‡University of Toulouse (GREMAQ), 21 Allée de Brienne, 31000 Toulouse, France, LSE and CEPR. E-mail: [email protected]