The Effect of Bidders' Asymmetries on Expected Revenue in Auctions
by
Estelle Cantillon
Cowles Foundation, Yale and Harvard Business School

Bidders' heterogeneities are widespread in auction markets. Yet, their impact on behavior and, ultimately, revenue and profits is still not well understood. In this paper, I define a natural benchmark auction environment to which to compare any private value auction with asymmetrically distributed valuations. I show that the expected revenue from the benchmark auction always dominates that from the asymmetric auction, both in the first price auction and the second price auction.

These results formalize and make transparent the idea that competition is reduced by bidders' asymmetries. The paper also contributes to a better understanding of competition and the nature of rents in auction markets. Anonymity of the allocation mechanism seems to be an important factor.

Date received: May 12, 2000

Copyright © 2000 by the author(s). The author(s) of this document and the organizers of the conference have granted their consent to include this abstract in Atlas Conferences Inc. Document # cafc-41.