Information disclosure in auctions with downstream competition

Abstract

When bidders’ valuations are derived from a downstream market in which they may compete, the allocation to the firms with the lowest costs can differ from the allocation that maximizes the ex post valuations of the bidders. I consider the problem of auctioning two goods to bidders whose valuations for a good flexibly depend on their and their rival’s costs as well as the identity of the rival. I show that revealing the identities of winners through a sequential auction procedure leads to allocations in which bidders tend to have higher ex post valuations but also higher costs when compared to a simultaneous auction.