Auctions and Leaks: A Theoretical and Experimental Investigation
31 Pages Posted: 21 Sep 2017
Date Written: September 20, 2017
In first- and second-price private value auctions with sequential bidding, second movers may discover the first movers' bid. Equilibrium behavior in the first-price auction is mostly unaffected but there are multiple equilibria in the second-price auction. Consequently, comparative statics across price rules are equivocal. Experimentally, leaks in the first-price auction favor second movers but harm first movers and sellers, as theoretically predicted. Low to medium leak probabilities eliminate the usual revenue dominance of first- over second-price auctions. With a high leak probability, second-price auctions generate significantly more revenue.
Keywords: auction, espionage, collusion, laboratory experiment.
JEL Classification: C72, C91, D44
Suggested Citation: Suggested Citation