- Bidding for the Future: Signaling in Auctions with an Aftermarket
- Journal of Economic Theory
- Volume | Issue number
- 108 | 2
- Number of pages
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
This paper considers auctions where bidders compete for an advantage in future strategic interactions. When bidders wish to exaggerate their private information, equilibrium bidding functions are biased upwards as bidders attempt to signal via the winning bid. Signaling is most prominent in second-price auctions where equilibrium bids are "above value." In English and first-price auctions, signaling is less extreme since the winner incurs the cost of her signaling choice. The opportunity to signal lowers bidders’ payoffs and raises revenue. When bidders understate their private information, separating equilibria need not exist and the auction may not be efficient.
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