Bidder solicitation, adverse selection, and the failure of competition

Stephan Lauermann, Asher Wolinsky

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

We study a common value, first-price auction in which the number of bidders is endogenous: the seller (auctioneer) knows the value and solicits bidders at a cost. The number of bidders, which is unobservable, may thus depend on the true value. Therefore, being solicited conveys information. This solicitation effect may soften competition and impede information aggregation. Under certain conditions, there is an equilibrium in which the seller solicits many bidders, yet the resulting price is not competitive and fails to aggregate any information. More broadly, these ideas are relevant for markets with adverse selection in which informed traders initiate contacts.

Original languageEnglish (US)
Pages (from-to)1399-1429
Number of pages31
JournalAmerican Economic Review
Volume107
Issue number6
DOIs
StatePublished - Jun 2017

ASJC Scopus subject areas

  • Economics and Econometrics

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