Optimal auctions with asymmetrically informed bidders (Q2502341)

The paper deals with an optimal auction design problem in the case of a multi-unit common value auction with asymmetrically informed bidders. The authors consider a market with \(n\) (risk averse) informed bidders who receive a signal about the true value of the asset on sale, and a continuum of risk neutral uninformed bidders who only observe the probability distribution of the signals. The aim of the paper is to investigate how the presence of uninformed bidders alters the design of the optimal selling mechanism. This problem has high empirical relevance in finance. Initial Public Offerings of shares and Treasury bills auction can serve as the examples of the situations where the considered pattern occurs. The contribution of the paper is threefold. Firstly, the optimal selling mechanism is fully characterized by deriving the optimal allocation and pricing rule in a very general setup. The authors found that when informed bidders reveal ``bad news'' about the value of the good, the seller optimally awards the object to the uninformed bidders. Secondly, it is shown that the seller is better off in presence of uninformed bidders because it allows to lower the informational rents paid to the informed bidders. And thirdly, it is found that with bilateral risk neutrality the seller always awards the good to the uniformed bidders thereby keeping all the surplus.