Repeated Common Value Auctions∗

This paper considers a first price common value auction with one-sided private information among bidders. An object is rented each period to the highest bidder without revealing the bids made in previous periods. The paper extends single crossing arguments used in static games to show the existence of equilibrium in this repeated auction. The model predicts that bidders bid more aggressively in a repeated auction than in a static auction, because a higher bid increases the amount of information learned through bidding. This learning process occurs since bidders observe who won in previous periods and can update their beliefs about the signals of other bidders. This bidding behavior leads to a theoretical explanation for the winner’s curse in repeated auctions. The aggressive bidding behavior also implies that the per period revenue of the repeated auction is higher than that of the oneperiod counterpart. In addition, the model yields predictions like an increasing wage schedule and the institution of a signing bonus that are consistent with labor market observations. We also extend the model to the case where the seller is strategic and maximizes her expected discounted revenue. ∗I am grateful to Wolfgang Pesendorfer for guidance and invaluable advice throughout this project. I am also indebted to Marco Battaglini and Eric Maskin for their useful suggestions. I would like to thank Attila Ambrus, Katalin Bognár, Norbert Maier, József Molnár, Shantanu Mukherjee, Daisuke Nakajima, Balázs Szentes, Steve Tadelis, Lawrence Uren as well as seminar participants at the University of Rochester, University of Rotterdam, University of Toronto and University of Virginia. All remaining errors are mine. †University of Rochester, Department of Economics, 228 Harkness Hall, NY14627, e-mail: [email protected]