Compte, O.; Jehiel, P.; (2002) Auctions and information acquisition: sealed-bid or dynamic formats? (ELSE Working Papers 50). ESRC Centre for Economic Learning and Social Evolution: London, UK.

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Abstract

Firms need to spend time and money to …gure out how much assets for sale are worth to them. Which selling procedure is likely to generate better incentives for information acquisition? We show that multi-stage and in particular ascending price auctions with breaks (that allow for information acquisition) perform better than their static counterpart. This is because dynamic formats allow bidders to observe the number of competitors left throughout the selling procedure, hence to get a much better estimate of their chance of winning. Since information acquisition tends to generate higher revenues, our analysis provides a new rationale for using dynamic formats rather than sealed-bid ones. Our conclusion is reinforced when multiple objects are sold, because dynamic formats may not only provide bidders with estimates on whether competition is soft or not, but also on which object competition is softer.

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