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American Economic Journal: Microeconomics: Vol. 4 No. 4 (November 2012)

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Auctions in Markets: Common Outside Options and the Continuation Value Effect

Article Citation

Lauermann, Stephan, and Gábor Virág. 2012. "Auctions in Markets: Common Outside Options and the Continuation Value Effect." American Economic Journal: Microeconomics, 4(4): 107-30.

DOI: 10.1257/mic.4.4.107

Abstract

In this paper, we study auctions with outside options provided by future market interaction focusing on the revenue effects of some information revelation policies. We show that auctions with less information revelation may yield higher revenues. In particular, we show that it is never optimal for the auctioneer to reveal information after the auction. Moreover, it is also not optimal to reveal information before the auction unless bidders already have precise information on their own. Our model provides a novel explanation for the prevalence of opaque trading mechanisms, and it offers insights into information sharing in dynamic models of trade. (JEL D44, D83)

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Authors

Lauermann, Stephan (U MI)
Virág, Gábor (U Toronto)

JEL Classifications

D44: Auctions
D83: Search; Learning; Information and Knowledge; Communication; Belief

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