A SIMPLE-MODEL OF EXPERT AND NONEXPERT BIDDING IN FIRST-PRICE AUCTIONS

This paper studies the equilibrium bidding behavior in a first-price s ealed-bid auction when the number of informed bidders is not common kn owledge. Both the independent private values and the common value case s are analyzed, under the assumption that a ''neutral'' signal exists. In equilibrium, experts and non-experts draw their bids from distinct supports: experts bid in the upper and lower tail of the bidding dist ribution and non-experts randomize their bids in between. For common v alues, it is shown that the seller's expected revenue always decreases with the probability of a bidder being informed when this probability is small. The opposite result is shown for the case of independent pr ivate values. (C) 1996 Academic Press, Inc.