1. INFORMATION ASYMMETRIES IN COMMON VALUE AUCTIONS WITH DISCRETE SIGNALS Vasilis Syrgkanis Microsoft Research, NYC Joint with David Kempe, USC Eva Tardos, Cornell University

2. Vasilis Syrgkanis Ad Auctions and Information Asymmetries Web Impression Ad Space Information Asymmetries in Common Value Auctions

3. Vasilis Syrgkanis Ad Auctions and Information Asymmetries Web Impression Ad Space Information Asymmetries in Common Value Auctions

4. Vasilis Syrgkanis Ad Auctions and Information Asymmetries Ad Space Information Asymmetries in Common Value Auctions

5. Vasilis Syrgkanis Common Value Single-Item Auction Information Asymmetries in Common Value Auctions

6. Vasilis Syrgkanis Assumptions Signal of each bidder comes from Discrete Ordered Set Information Asymmetries in Common Value Auctions

7. Vasilis Syrgkanis Assumptions Signal of each bidder comes from Discrete Ordered Set Informative: Higher Signal – Higher Expected Value Information Asymmetries in Common Value Auctions

8. Vasilis Syrgkanis Assumptions Signal of each bidder comes from Discrete Ordered Set Informative: Higher Signal – Higher Expected Value Affiliated: Higher Signal – Stochastically Higher Signal for Opponent Information Asymmetries in Common Value Auctions

9. Vasilis Syrgkanis Assumptions Signal of each bidder comes from Discrete Ordered Set Informative: Higher Signal – Higher Expected Value Affiliated: Higher Signal – Stochastically Higher Signal for Opponent Signals Drawn from Arbitrary Asymmetric and Correlated Distribution (with full support) Information Asymmetries in Common Value Auctions

10. Vasilis Syrgkanis Traditional Applications Information Asymmetries in Common Value Auctions

11. Vasilis Syrgkanis Main Questions How do bidders behave in equilibrium? Information Asymmetries in Common Value Auctions

12. Vasilis Syrgkanis Main Questions How do bidders behave in equilibrium? Which auction formats yield higher revenue? Information Asymmetries in Common Value Auctions

13. Vasilis Syrgkanis Main Questions How do bidders behave in equilibrium? Which auction formats yield higher revenue? How does extra information affect player utilities and seller’s revenue? Information Asymmetries in Common Value Auctions

14. Vasilis Syrgkanis Auctions Considered – Hybrid Auctions Information Asymmetries in Common Value Auctions

15. Vasilis Syrgkanis Auctions Considered – Hybrid Auctions Information Asymmetries in Common Value Auctions

16. Vasilis Syrgkanis Auctions Considered – Hybrid Auctions Information Asymmetries in Common Value Auctions

17. Vasilis Syrgkanis Related Work Value of information in auctions: [Milgrom ’79], [Milgrom/Weber ’82],... Common-value auctions with binary signals: [Banerjee ’05], [Abraham/Athey/Babaioff/Grubb ’12] Continuous values/signals: [Engelbrecht- Wiggans/Milgrom/Weber ’83],..., [Parreiras ’06] Other common-value models: [Rothkopf ’69], [Reece ’78], [Hausch ’87], [Wang ’91], [Laskowski/Slonim ’99], [Kagel/Levin ’02]. Value of information: [Lehmann ’88], [Persico ’00], [Athey/Levin ’01], [Compte/Jehiel’07], [Es˝o/Szentes ’07] Information Asymmetries in Common Value Auctions

18. Vasilis Syrgkanis How do bidders behave in equilibrium? Theorem. There exists a unique equilibrium which is mixed and can be found constructively. Information Asymmetries in Common Value Auctions

19. Vasilis Syrgkanis How do bidders behave in equilibrium? Mixed Nash Equilibrium must look as follows: bids Information Asymmetries in Common Value Auctions

20. Vasilis Syrgkanis 5 How do bidders behave in equilibrium? Mixed Nash Equilibrium must look as follows: 12 34 1 234 Range of Bids Conditional on Receiving Signal 3 bids Information Asymmetries in Common Value Auctions

21. Vasilis Syrgkanis 5 How do bidders behave in equilibrium? Mixed Nash Equilibrium must look as follows: 12 34 1 234 Range of Bids Conditional on Receiving Signal 3 bids Information Asymmetries in Common Value Auctions

22. Vasilis Syrgkanis 5 How do bidders behave in equilibrium? Mixed Nash Equilibrium must look as follows: 12 34 1 234 Range of Bids Conditional on Receiving Signal 3 bids Information Asymmetries in Common Value Auctions

23. Vasilis Syrgkanis 5 Unique Equilibrium There exists a unique equilibrium defined by a recursive process: 12 34 1 Player Z 234 bids Information Asymmetries in Common Value Auctions

24. Vasilis Syrgkanis 5 Unique Equilibrium There exists a unique equilibrium defined by a recursive process: 12 34 1 Player Z 234 bids Information Asymmetries in Common Value Auctions

25. Vasilis Syrgkanis 5 Unique Equilibrium There exists a unique equilibrium defined by a recursive process: 12 34 1 Player Z 234 bids Information Asymmetries in Common Value Auctions

26. Vasilis Syrgkanis 5 Unique Equilibrium There exists a unique equilibrium defined by a recursive process: 12 34 1 Player Z 234 bids Information Asymmetries in Common Value Auctions

27. Vasilis Syrgkanis 5 Unique Equilibrium There exists a unique equilibrium defined by a recursive process: 12 34 1 Player Z 234 bids Information Asymmetries in Common Value Auctions

28. Vasilis Syrgkanis 5 Unique Equilibrium There exists a unique equilibrium defined by a recursive process: 12 34 1 Player Z 234 bids Information Asymmetries in Common Value Auctions

29. Vasilis Syrgkanis 5 Unique Equilibrium There exists a unique equilibrium defined by a recursive process: 12 34 1 Player Z 234 bids Information Asymmetries in Common Value Auctions

30. Vasilis Syrgkanis 5 Unique Equilibrium There exists a unique equilibrium defined by a recursive process: 12 34 1 Player Z 234 bids Information Asymmetries in Common Value Auctions

31. Vasilis Syrgkanis 5 Unique Equilibrium There exists a unique equilibrium defined by a recursive process: 12 34 1 Player Z 234 bids Information Asymmetries in Common Value Auctions

32. Vasilis Syrgkanis 5 Unique Equilibrium 12 34 1 Player Z 234 bids Information Asymmetries in Common Value Auctions

33. Vasilis Syrgkanis A Simple Example: First Price – Binary Signal One player receives a binary signal and the other is uninformed Player Z

34. Vasilis Syrgkanis A Simple Example: First Price – Binary Signal

35. Vasilis Syrgkanis A Simple Example: First Price – Binary Signal One player receives a binary signal and the other is uninformed Player Z

36. Vasilis Syrgkanis A Simple Example: Limit to Second Price One player receives a binary signal and the other is uninformed Player Z

37. Vasilis Syrgkanis A Simple Example: Limit to Second Price One player receives a binary signal and the other is uninformed Player Z

38. Vasilis Syrgkanis Second Price Selection – No Revenue Collapse Player Z Different prediction than the collapsed revenue equilibrium predicted by tremble-robust equilibrium selection of Abraham et al.

39. Vasilis Syrgkanis Only one informed bidder Informed Bidder bids “truthfully” Uninformed Bidder simulates informed bidder’s bid First and Second Price: Revenue Equivalent Information Asymmetries in Common Value Auctions Player Z

40. Vasilis Syrgkanis Complete Revenue Ranking Our Result: The equilibrium revenue is a non-increasing function of the probability that the winner pays his bid. Information Asymmetries in Common Value Auctions

41. Vasilis Syrgkanis Complete Revenue Ranking Our Result: The equilibrium revenue is a non-increasing function of the probability that the winner pays his bid. Complete Revenue Ranking among Hybrid Auctions Information Asymmetries in Common Value Auctions

42. Vasilis Syrgkanis Complete Revenue Ranking Our Result: The equilibrium revenue is a non-increasing function of the probability that the winner pays his bid. Complete Revenue Ranking among Hybrid Auctions First Price – Worst Revenue Information Asymmetries in Common Value Auctions

43. Vasilis Syrgkanis Complete Revenue Ranking Our Result: The equilibrium revenue is a non-increasing function of the probability that the winner pays his bid. Complete Revenue Ranking among Hybrid Auctions First Price – Worst Revenue Revenue monotonically increases as we move from first price to second price Information Asymmetries in Common Value Auctions

44. Vasilis Syrgkanis Complete Revenue Ranking Our Result: The equilibrium revenue is a non-increasing function of the probability that the winner pays his bid. Complete Revenue Ranking among Hybrid Auctions First Price – Worst Revenue Revenue monotonically increases as we move from first price to second price Limit Equilibrium of Second Price Selected, has highest revenue among hybrid auctions Information Asymmetries in Common Value Auctions

45. Vasilis Syrgkanis Should seller reveal his private signals? Ad Space Information Asymmetries in Common Value Auctions

46. Vasilis Syrgkanis Failure of the Linkage Principle Linkage Principle [Milgrom-Weber’82]: In common value settings, the more information you link to the price of the winning bidder the higher the revenue. Implication: Seller should always reveal affiliated signals. Information Asymmetries in Common Value Auctions

47. Vasilis Syrgkanis Failure of the Linkage Principle Linkage Principle [Milgrom-Weber’82]: In common value settings, the more information you link to the price of the winning bidder the higher the revenue. Implication: Seller should always reveal affiliated signals. Our Result: Fails when bidders have asymmetric information! Implication: Revealing policy not necessarily optimal in a market with information asymmetry! Information Asymmetries in Common Value Auctions

48. Vasilis Syrgkanis Failure of the Linkage Principle Linkage Principle [Milgrom-Weber’82]: In common value settings, the more information you link to the price of the winning bidder the higher the revenue. Implication: Seller should always reveal affiliated signals. Our Result: Fails when bidders have asymmetric information! Implication: Revealing policy not necessarily optimal in a market with information asymmetry! Breaks even in first price auction when each bidder and the auctioneer have binary signals of different accuracy Information Asymmetries in Common Value Auctions

49. Vasilis Syrgkanis Failure of the Linkage Principle Information Asymmetries in Common Value Auctions

50. Vasilis Syrgkanis How does extra information affect player utilities? Ad Space Third Party Information Sellers Buy Access to Extra Cookies Information Asymmetries in Common Value Auctions

51. Vasilis Syrgkanis Surprising Externality Effects Obviously, information can have negative externalities Information Asymmetries in Common Value Auctions

52. Vasilis Syrgkanis Surprising Externality Effects Obviously, information can have negative externalities But… Information can also have positive externalities Information Asymmetries in Common Value Auctions

53. Vasilis Syrgkanis Surprising Externality Effects Obviously, information can have negative externalities But… Information can also have positive externalities E.g. both bidders might strictly prefer that a specific bidder receives the extra signal Information Asymmetries in Common Value Auctions

54. Vasilis Syrgkanis Recap Information Asymmetries in Common Value Auctions