Affiliated common value auctions with costly entry (Q6899484)

It is known that many auctions and procurement contests entail nontrivial bidding costs, which makes the bidders' participation decisions endogenous to the auction design. In this article the authors analyse the effect of different auction rules on potential bidders' incentives to participate. The basic investigations are focused on first-price auctions with affiliated common values and a large pool of potential bidders.\N\NThe authors' interest is on auctions where the realized number of bidders is unknown at the bidding stage. It is shown that uncertainty in the number of actual bidders leads to new types of bidding equilibria and to new revenue results in single object auctions with affiliated common values. In particular, the authors demonstrate that informal first-price auctions perform better than their formal counterparts when entry costs are significant. The expected revenue to the seller is often higher in the auction where the realized number of participating bidders is not disclosed.