Auction Selection by an Informed Seller

We analyze selection of an auction format by an informed seller. We model a game with two stages: first, an informed seller announces a good for sale and chooses an auction format from a set of standard auctions; second, privately informed bidders compete for the object. The game has an important signaling element as the auction choice may signal the seller’s type. We study both private and common value setups and the case when there are many bidders. Our main finding is that an informed risk neutral seller has a tendency to use the English auction. We show that the signaling effects are strong even when there are many bidders so the standard ‘Linkage Principle’ effects are weak. We also study the selection of auction format by a risk averse seller. If uninformed, in a common value model with many bidders the seller strictly prefers the first-price auction. If informed, different types choose different formats; in large auctions high types choose the English auction, while low types sealed-bid auctions. ∗Graduate School of Business, Stanford University, Stanford CA 94305, USA. Email: [email protected], [email protected]. We thank Jacques Crémer for useful comments. The second author acknowledges financial support of the CEBC.