Asymmetric Common Value Auctions with Applications to Auctions with Resale

We study a model of common value auctions in which bidders’ private information are independently and asymmetrically distributed. We provide two sufficient conditions under which a first-price auction generates higher revenue than a second-price auction (for a selected equilibrium). A necessary condition is given for this revenue-ranking result to hold in general. We illustrate that in a first-price auction, the seller may benefit from the asymmetry of the bidder information, unlike in the case of private value auctions (as in Cantillon 2007). We further establish a strategic equivalence between our model of common value auctions and an independent and private value (IPV) auction model with resale, when the resale mechanism satisfies a sure-trade property and the common value is the sure-trade price. Using this strategic equivalence and the revenue-ranking result for the common value auctions, we provide an alternative proof of the revenue-ranking result of Hafalir and Krishna (2007) in the IPV auctions with resale. The revenue ranking holds when the offer-maker is fixed or is contingent on the auction outcome. We illustrate that the opposite revenue-ranking may arise (i) when one of the distribution functions does not satisfy the regularity property, or (ii) when the resale mechanism involves repeated offers and delay costs, or (iii) when the Coase Conjecture holds as in Gul, Sonnenschein, and Wilson (1986) and Ausubel and Deneckere (1992). ∗We would like to thank Priyodorshi Banerjee, Jeremy Bulow, Isa Hafalir, Rene Kirkegaard, Vijay Krishna, Bernard Lebrun, Joel Sobel, Simon Wilkie, Charles Zhang, and the participants at the Santa Barbara conference on auctions with resale, April 2007, for many helpful comments. Please contact Harrison Cheng at [email protected] and Guofu Tan at [email protected] for further suggestions.