Question

Releasing more information in a common-value auction is: 1) good for the bidders because it reduces the risk that they face 2) good for the auctioneer because it attracts more bidders 3) good for the bidders because they are less likely to bid more on the item than it’s worth 4) both 1 and 2

Please, clarify your answer.

Answer 1

4) both 1, and, 2

Profit of the bidder is higher with more uncertainty. Releasing more information reduces uncertainty. This reduces the profits for the winning bidder. Both auctioneer, and, the bidders gain. The disclosure diminishes the winner's curse; leads to aggressive bidding. The expected profit of the winner stays the same. The reduction in uncertainty leads to a higher expected total surplus. The auctioneer's expected revenue goes up, even though, the winner's profits do not increase.