Comparative Static Effects of Number of Bidders and Public Information on Behavior in Second-Price Common Value Auctions

,Abstract: Comparative static tests of Nash bidding theory in second-price common value auctions show that bidders fail to respond in the right direction to more rivals and to public infonnation concerning the value of the item. The fonner provides a clear indication that bidders fail to appreciate the adverse selection forces inherent in common value auctions. while the latte( shows that policy prescriptions can fail given out-of-equilibrium behavior. These tests of Nash bidding theory apply to a far wider variety of circumstances than in first-price auctions. so there is less scope to rationalize the failure of the theory.