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Second-price auctions with information acquisition costs

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Abstract

We analyze bidders’ information acquisition behaviors in second-price private value auctions. In our model, each bidder lacks knowledge for their own valuation of the object for sale and can only discover it by incurring a cost. We investigate the pure strategy equilibrium of information acquisition, providing conditions for the existence of equilibrium and proposing an algorithm for discovering all equilibria. Our findings suggest that the number of informed bidders remains constant across all equilibria. Furthermore, we demonstrate that the expected revenue is a decreasing function of the number of uninformed bidders.

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Data Availability

This work is not based on any empirical or simulated data. Hence, there is no dataset necessary or available in order to interpret, replicate, and build upon the findings reported here.

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Acknowledgements

The authors gratefully acknowledge the financial support from JSPS: 22H00829 (Abe) and 24K04777 (Yamato).

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Authors and Affiliations

  1. Department of Economic Engineering, School of Economics, Kyushu University, 744, Motooka, Nishi-ku, Fukuoka, 819-0395, Japan

    Takaaki Abe

  2. Department of Industrial Engineering and Economics, School of Engineering, Tokyo Institute of Technology, 2-12-1, Ookayama, Meguro-ku, Tokyo, 152-8552, Japan

    Tsuyoshi Onda

  3. Department of Industrial Engineering and Economics, School of Engineering, Institute of Science Tokyo, 2-12-1, Ookayama, Meguro-ku, Tokyo, 152-8552, Japan

    Takehiko Yamato

Authors
  1. Takaaki Abe
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  2. Tsuyoshi Onda
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  3. Takehiko Yamato
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Correspondence to Takaaki Abe.

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Abe, T., Onda, T. & Yamato, T. Second-price auctions with information acquisition costs. Econ Theory Bull (2024). https://doi.org/10.1007/s40505-024-00277-7

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