International Journal of Game Theory

, Volume 30, Issue 3, pp 405-419

First online:

Dominant strategies, superior information, and winner's curse in second-price auctions

  • Ezra EinyAffiliated withEconomics Department, Ben-Gurion University of the Negev, Beer-Sheva 84105, Israel (e-mail: einy@bgumail.bgu.ac.il, orih@bgumail.bgu.ac.il, anersela@bgumail.bgu.ac.il)
  • , Ori HaimankoAffiliated withEconomics Department, Ben-Gurion University of the Negev, Beer-Sheva 84105, Israel (e-mail: einy@bgumail.bgu.ac.il, orih@bgumail.bgu.ac.il, anersela@bgumail.bgu.ac.il)
  • , Ram OrzachAffiliated withIndustrial Engineering and Management, Ben-Gurion University of the Negev, Beer-Sheva 84105, Israel (e-mail: orzach@bgumail.bgu.ac.il)
  • , Aner SelaAffiliated withEconomics Department, Ben-Gurion University of the Negev, Beer-Sheva 84105, Israel (e-mail: einy@bgumail.bgu.ac.il, orih@bgumail.bgu.ac.il, anersela@bgumail.bgu.ac.il)

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Abstract.

In a general model of common-value second-price auctions with differential information, we show equivalence between the following characteristics of a bidder: (i) having a dominant strategy; (ii) possessing superior information; (iii) being immune from winner's curse. When a dominant strategy exists, it is given by the conditional expectation of the common value with respect to bidder's information field; if the dominant strategy is used, other bidders cannot make a profit.

JEL Classification: C72 D44 D82.
Key words: common-value second-price auctions differential information dominant strategies information superiority winner's curse.