Asymmetric Information in Common-Value Auctions and Contests: Theory and Experiments

Abstract

In common-value auctions and contests economic agents often have varying levels of information regarding the value of the good to be allocated. Using theoretical and experimental analysis, I examine the effect of such information asymmetry on behavior. Chapter II considers a model in which players compete in two sequential contests. The winner of the first contest (the incumbent) privately observes the value of the prize, which provides private information if the prizes are related. Relative to the case where the prizes are independent, the incumbent is strictly better off, and the other contestants (the challengers) are strictly worse off. This increases the incentive to win the first contest such that the sum of expected effort over both contests increases relative to the case of independent prizes. Chapter III experimentally considers the role of asymmetric information in first-price, sealed-bid, common-value auctions. Bidders who observe a private signal tend to overbid relative to Nash equilibrium predictions. Uninformed bidders, however, tend to underbid relative to the Nash equilibrium. Chapter IV examines asymmetric information in one-shot common-value all-pay auctions and lottery contests from both experimental and theoretical perspectives As predicted by theory, asymmetric information yields information rents for the informed bidder in both all-pay auctions and lottery contests.