An experiment on first-price common-value auctions with asymmetric information structures: The blessed winner

Abstract

In common-value auctions bidders have access to public information, and may also hold private information prior to choosing their bids. The literature has predominately focused on the case in which bidders are ex-ante symmetric and privately informed, and finds that aggressive bidding such that payoffs are negative is common (the winner's curse). In practice, bidders often only have access to public information, and use this information to form (possibly differing) beliefs. In addition, a bidder who is not privately informed may face bidders who are. We examine bidding behavior of both informed and uninformed bidders, and vary the information structure they face. We find that uninformed bidders underbid dramatically and persistently, while informed bidders tend to overbid in the two-bidder case. Our results highlight the importance of correctly modeling the information available to bidders.