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Common Values vs. Private Values in Auctions |
In the common-value model,the actual value is the same for everyone, but bidders have different private information ("signals") about what that value actually is. In this case a bidder would change her estimate of the value if she learned another bidder's signal. |
In contrast, in private-values model,each bidder knows how much he values the object for sale but his value is private information. In contrast to the common-value setting,a bidder's value would be unaffected by learning any other bidder's information. |
In-between |
In practice, many goods have neither purely private values nor purely common values. Consider a work of art. It is likely to have an important private value aspect (where each individual bidder alone knows how much she likes or dislikes the work), but also a significant common value aspect (because anyone who wins the auction may decide to resell the work later). |
The presence of asymmetric information is another key feature in auction theory. |
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Page source: http://www.econport.org/econport/request?page=man_auctions_commpriv
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