Abstract
We study how ex ante information asymmetries affect revenue in common-value second-price auctions, motivated by online advertising auctions where “cookies” inform individual advertisers about advertising opportunities. We distinguish information structures in which cookies identify “lemons” (low-value impressions) from those in which cookies identify “peaches” (high-value impressions). As this setting features multiple Nash equilibria, we introduce a new refinement, “tremble robust equilibrium” (TRE) and characterize the unique TRE in first-price and second-price common-value auctions with two bidders who each receive a binary signal. We find that common-value second-price auction revenues are vulnerable to ex ante information asymmetry if relatively rare cookies identify lemons, but not if they identify peaches. First-price auction revenues are substantially higher than second-price auction revenues under these conditions. Extensions show that these insights are robust.
Original language | English |
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Pages (from-to) | 454-477 |
Number of pages | 24 |
Journal | Games and Economic Behavior |
Volume | 124 |
DOIs | |
State | Published - Nov 2020 |
Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2020 Elsevier Inc.
Keywords
- Asymmetry
- Auction
- Common value
- Market design
- Online advertising