Auctions and Leaks: A Theoretical and Experimental Investigation

Abstract

We study first-and second-price private value auctions with sequential bidding where second movers may discover the first movers bids. There is a unique equilibrium in the first-price auction and multiple equilibria in the second-price auction. Consequently, comparative statics across price rules are equivocal. We experimentally find that in the first-price auction, leaks benefit second movers but harm first movers and sellers. Low to medium probabilities of leak eliminate the usual revenue dominance of first-price over second-price auctions. With a high probability of a leak, second-price auctions generate higher revenue.

Collusion and information revelation in auctions

“…See alsoFischer et al (2014), who found that first-price auctions do not generate higher seller revenue compared to second-price auctions if there is a non-negligible probability that one bidder's bid leaks to the other bidder.…”