Ignorance Promotes Competition: an Auction Model with Endogenous Private Valuations


We study a situation in which an auctioneer wishes to sell an object to one of N risk-neutral bidders with heterogeneous preferences. The auctioneer does not know bidders' preferences but has private information about the characteristics of the object, and must decide how much information to reveal prior to the auction. We show that the auctioneer has incentives to release less information than would be efficient and that the amount of information released increases with the level of competition (as measured by the number of bidders). Furthermore, in a perfectly competitive market the auctioneer would provide the efficient level of information.