A Note on Competitive Bidding with Asymmetric Information

An interesting case of competitive bidding with an asymmetrical knowledge about the true value of the auctioned object is examined by R. Wilson [4]. The primary motivation for his study is the insight it provides about the value of information, or, more specifically, about the relative gains of the informed bidder vs. the uninformed bidder. As a by-product one can learn something about the ability of the seller to appropriate or realize the value of the item he offers for sale and about the identiy of the buyer. His analysis tells us, in short, about allocations and imputation under conditions of uncertainty and symmetric market positions - a fundamental question in economic theory. The purpose of this paper is expositional. By means of two alternative approaches, I will derive the equilibrium strategies and outcomes of the bidding game formulated by Wilson. A few flaws in his analysis will be corrected thererby. Additional examples illustrating the results will be offered. To be self-sufficient, let me start out by presenting the real-life situtation we wish to investigate and the model corresponding to it