Publication Date: October 2000
Bidders’ asymmetries 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.
Auctions, asymmetries, anonymous mechanisms, benchmark, reduced competition
JEL Classification Codes: D40, D44, L13
Published in Games and Economic Behavior (January 2008), 62(1): 1-25 [DOI]