Secret versus public rings in common value auctions

Abstract

For a second-price common value auction with an “almost all-inclusive ring,” we analyze whether the auctioneer should reveal the ring's presence, and if so, whether this revelation should be public or private to the nonring bidder. We show that for a family of value functions, public revelation induces the nonring bidder to bid higher than in a noncooperative scenario. This implies that the auctioneer may improve his position this way. On the other hand, it highlights a new tactic that an auctioneer may use to manipulate bidder behavior by creating the false impression of collusion to induce higher bids.