THE ROLE OF INFORMATION IN PRIVATE VALUE AUCTIONS

Abstract

This dissertation studies the role that the information available to the participants of private value procurement auctions prior to the auction has on the equilibrium auction outcomes. Chapters 1 and 2 present two different models in which the private type of one of the participants is persistent over time and can be informative to her competitors. Chapter 3 looks at the effects of a policy change making the information about upcoming procurement auctions more easily available has on the entry of different types of firms in the auctions.

In Chapter 1 I build and estimate a model of repeated asymmetric first price auction in which one of the bidders has a persistent private type, all bidders are backward looking, and all bids are made public after the auction. In particular, I show that the standard model without a binding reserve price misestimates expected procurement costs by 2-14% compared to my model, and withholding past bid information from auction participants can reduce expected procurement costs by up to 11%. These results are relevant for the estimation of both US highway procurement auctions since all of the states' Departments of Transportation publish full auction results online.

In Chapter 2 I look at a theoretical model of repeated asymmetric first price auction in which all bids are made public between the auctions, one of the bidders has a persistent private type and is forward-looking. I show that a strictly monotonic equilibrium would not exist in this game, and provide an example of a partially pooling equilibrium in which the bidder with persistent type forgoes profits in the earlier period to withhold the information from her competitors in future periods.

Chapter 3 studies the effect that the changes in public procurement rules in Russia had on participation and bidding in regional gasoline procurement auctions. In particular, I look at the difference in changes of entry and bidding patterns for large and small firms after the information about upcoming auctions became more easily available in Jan 2011. I show that the larger firms who have stations both outside and inside of the studied region enter more auctions and bid more aggressively, while local firms who

only have stations inside the region do not change entry patterns and bid less aggressively. I associate these changes to the differential changes in entry costs for the different types of firms and confirm this intuition by comparing the structural estimates of entry costs between firm types and time periods.