On the Strategic Use of Seller Information in Private-Value First-Place Auctions

Todd R. Kaplan
Shmuel Zamir

In the framework of a private-value auction first-price, we consider the seller as a player
in a game with the buyers in which he has private information about their realized values.
We ask whether the seller can benefit by using his private information strategically. We
find that in fact, depending upon his information, set of signals, and commitment power
the seller may indeed increase his revenue by strategic transmission of his information. We
study mainly the case of partial truthful commitment (VC) in which the seller can commit
to send only truthful (verifiable) messages. We show that in the case of two buyers with
values distributed independently uniformly on [0,1], a seller informed of the private values
of the buyers, can achieve a revenue close to 1/2 by sending verifiable messages (compared
to 1/3 in the standard auction), and this is the largest revenue that he can reach with any
signaling strategy and any level of commitment. The case studied here provides valuable
insight into the issue of strategic use of information which applies more generally.

December, 2021