Information Asymmetry and Private Values in Second Price Auctions

  • Autor:

    David Huber

  • Datum: September 2020
  • I propose an auction model which reflects a situation in which one bidder faces competitors who are much better informed about the prize's quality. Situations like this might occur in market entry situations like the recent 5G spectrum auction in Germany, where after intense bidding, a new market entrant managed to obtain a significant share of the spectrum. I extend the standard independent private value model to capture this type of information asymmetry and retrieve unique equilibrium predictions in undominated strategies. In a sealed bid format, the uninformed bidder is at a clear disadvantage and can predominantly only succeed in the auction if the object's quality is low. An open auction format can completely level the playing field, implementing the first best efficient outcome.