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Optimal Information Disclosure in Classic Auctions

  • Dirk Bergemann
  • Tibor Heumann
  • Stephen Morris
  • Constantine Sorokin
  • Eyal Winter
American Economic Review: Insights
vol. 4, no. 3, September 2022
(pp. 371-88)
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Abstract

We characterize the revenue-maximizing information structure in the second-price auction. The seller faces a trade-off: more information improves the efficiency of the allocation but creates higher information rents for bidders. The information disclosure policy that maximizes the revenue of the seller is to fully reveal low values (where competition is high) but to pool high values (where competition is low). The size of the pool is determined by a critical quantile that is independent of the distribution of values and only dependent on the number of bidders. We discuss how this policy provides a rationale for conflation in digital advertising.

Citation

Bergemann, Dirk, Tibor Heumann, Stephen Morris, Constantine Sorokin, and Eyal Winter. 2022. "Optimal Information Disclosure in Classic Auctions." American Economic Review: Insights, 4 (3): 371-88. DOI: 10.1257/aeri.20210504

Additional Materials

JEL Classification

  • D44 Auctions
  • D82 Asymmetric and Private Information; Mechanism Design
  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • M37 Advertising