An experiment on first-price common-value auctions with asymmetric information structures:
The blessed winner
November 1, 2018
This paper was first published in Games and Economic Behavior, Volume 109, in May 2018.
In auctions for leases of offshore oil and gas tracts, all bidders have access to public information regarding the value of the lease. However, if a bidder holds the lease to an adjacent tract, he may have private information about the value. Tracts where at least one of the bidders has access to such private information are know as drainage tracts. If no bidder holds such private information tracts are known as wildcat tracts.
This paper studies the effect of holding private information on bidding behavior in common-value auctions. Three environments are studied. In the first, no bidder has any private information. In the second, all bidders hold private information. Lastly, we allow one bidder to hold private information when the opposing bidder does not. Our experiments reveal that bidders who are informed overbid, while uninformed bidders tend to underbid.