Reputational Bidding

Abstract

We consider auctions where bidders care about the reputational effects of their bidding and argue that the amount of information disclosed at the end of the auction will influence bidding. We focus on bid disclosure rules that capture all of the realistic cases. We show that bidders distort their bidding in a way that conforms to stylized facts about takeovers/licence auctions. We rank the disclosure rules in terms of their expected revenues and find that, under certain conditions, full disclosure will not be optimal. First-price and second-price auctions with price disclosure are not revenue equivalent and we rank them. * Manuscript .2 As we shall see, reputational incentives introduce issues that are reminiscent of those found in common value auctions. Thus, information released during an ascending auction with more than two bidders is important for the bidding behavior of remaining bidders. By excluding this case, we focus on the implications for bidding behavior of information released at the end of auctions. Nevertheless, we note that our results regarding over-or underbidding (Proposition 3) would still hold in such setting. 3 Of course, an environment where the post-auction market is imperfectly competitive and/or there is a commonvalue component in the bidders' valuations is worth investigating for a full understanding of reputational bidding, but we view this as a starting point that clarifies the crucial role of various disclosure rules in an otherwise standard setting. 693 C (2014) by the

Signaling in Auctions: Experimental Evidence

“…3 A key finding from this literature is that an auction's equilibrium revenue depends on both the auction format used and the kind of information that the auctioneer reveals about the outcome of the auction. In settings where bidders have an incentive to overstate their private information, the first-price (FP) sealed-bid auction and secondprice (SP) sealed-bid auction yield the same expected revenue in a separating equilibrium if the auctioneer reveals only the winner's identity (Giovannoni and Makris, 2014) or the winner's identity and bid (Goeree, 2003;Haile, 2003;Katzman and Rhodes-Kropf, 2008;Giovannoni and Makris, 2014). 4 Giovannoni and Makris (2014) tie these revenue-equivalence results together by eliciting conditions which guarantee that an auction's expected revenue only depends on the information revealed, independently of the auction format used.…”

“…In contrast, if the winner's payment is revealed (rather than her bid), revenue equivalence breaks down. In that case, the SP auction dominates the FP auction in terms of expected revenue (Giovannoni and Makris, 2014;Bos and Truyts, 2017). Finally, revealing either the winner's bid or the winner's payment increases revenue in both the first-price and the second-price sealed-bid auction compared to the case where only the winner's identity is revealed (Giovannoni and Makris, 2014;Bos and Truyts, 2017).…”

“…Glazer and Konrad (1996) and Harbaugh (1998a,b) show that signalling is an important factor to explain patterns in donations to universities. 3 See Goeree (2003); Das Varma (2003); Haile (2003); Katzman and Rhodes-Kropf (2008); Monar and Virag (2008); Liu (2012); Marinovic (2014); Giovannoni and Makris (2014); and Bos and Truyts (2017). 4 Goeree (2003) and Das Varma (2003) show that in settings where bidders want to understate their private information, separating equilibria may fail to exist.…”

Signaling in Auctions: Experimental Evidence

“…3 A key finding from this literature is that an auction's equilibrium revenue depends on both the auction format used and the kind of information that the auctioneer reveals about the outcome of the auction. In settings where bidders have an incentive to overstate their private information, the first-price (FP) sealed-bid auction and secondprice (SP) sealed-bid auction yield the same expected revenue in a separating equilibrium if the auctioneer reveals only the winner's identity (Giovannoni and Makris, 2014) or the winner's identity and bid (Goeree, 2003;Haile, 2003;Katzman and Rhodes-Kropf, 2008;Giovannoni and Makris, 2014). 4 Giovannoni and Makris (2014) tie these revenue-equivalence results together by eliciting conditions which guarantee that an auction's expected revenue only depends on the information revealed, independently of the auction format used.…”

“…Glazer andKonrad (1996) andHarbaugh (1998a,b) show that signalling is an important factor to explain patterns in donations to universities 3. SeeGoeree (2003);Das Varma (2003);Haile (2003);Katzman and Rhodes-Kropf (2008);Monar and Virag (2008); Liu (2012); Marinovic (2014);Giovannoni and Makris (2014); and Bos and Truyts (2017) 4 Goeree (2003) andDas Varma (2003). show that in settings where bidders want to understate their private information, separating equilibria may fail to exist.…”