Optimal Information Disclosure in Auctions

This paper considers a seller’s information disclosure problem in the context of a second-price auction, e.g., what much information a website should disclose about its viewers to potential advertisers in auctions for digital ad impressions. In this context, more information leads to better matches between ads and viewers but reduces competition among advertisers. The paper characterizes the seller’s optimal information disclosure strategy, which falls in between no disclosure and full disclosure.

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Abstract and Citation

Dirk Bergemann, Tibor Heumann, and Stephen Morris. 2021. American Economic Review: Insights, forthcoming.

Abstract

We characterize the revenue-maximizing information structure in the second price auction. The seller faces a classic economic trade-o§: providing more information improves the e¢ - ciency of the allocation but also creates higher information rents for bidders. The information disclosure policy that maximizes the revenue of the seller is to fully reveal low values (where competition will be high) but to pool high values (where competition will be low). The size of the pool is determined by a critical quantile that is independent of the distribution of values and only dependent on the number of bidders. We discuss how this policy provides a rationale for conáation in digital advertising.

Publication Link

https://www.aeaweb.org/articles?id=10.1257/aeri.20210504

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