Repeated common value auctions with asymmetric bidders

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. The aggressive bidding behavior also implies that the per period revenue of the repeated auction is higher than that of the one-period counterpart. This bidding behavior leads to a theoretical explanation for the winner’s curse in repeated auctions. In addition, the model yields predictions like an increasing wage schedule over time and the institution of a signing bonus that are consistent with labor market observations. ∗I am grateful to Wolfgang Pesendorfer, Marco Battaglini and Eric Maskin for their useful suggestions. I would like to thank Attila Ambrus, Jan Eeckhout, József Molnár, Balázs Szentes, Steve Tadelis, Lawrence Uren as well as seminar participants at the University of Rochester, University of Rotterdam, University of Toulouse, 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]