Effect of Information Revelation Policies on Cost Structure Uncertainty

Geographically dispersed sellers in electronic reverse-marketplaces such as those hosted by Freemarkets are uncertain both about the number of opponents participating and their coststructure in any given market session. Over the course of several market sessions, they learn about the competitive structure of their market. How sellers learn to reduce the level of uncertainty is dependent on the revelation policy adopted. The revelation policies differ in terms of the level of competitive information revealed. Thus, they determine what sellers learn, how they bid in future, and, in general how the consumer surplus generated changes. In this paper, using game-theory, we compare a set of revelation policies commonly used in electronic reverse marketplaces on consumer surplus. Specifically, we focus only on the effect of revelation policies when firms are uncertain about their opponent’s cost. Based on our analysis, we provide intuition as to why under certain conditions one setting is better than the other.