Peaches, lemons, and cookies: Designing auction markets with dispersed information

Ittai Abraham, Susan Athey, Moshe Babaioff, Michael D. Grubb*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

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 languageEnglish
Pages (from-to)454-477
Number of pages24
JournalGames and Economic Behavior
Volume124
DOIs
StatePublished - Nov 2020
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2020 Elsevier Inc.

Keywords

  • Asymmetry
  • Auction
  • Common value
  • Market design
  • Online advertising

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