Online Hybrid Dutch Auction with both private and common value components and counteracting overpayments

Abstract

Auctions have been categorized exclusively as common value (CV) or private value (PV). Due to different cost structures of buyers and demand uncertainty, few studies would dispute that most real-world auctions have both elements. The well-designed online Hybrid Dutch Auction (HDA), with a transparent e-platform, can tackle collusion, overpayment, entry deterrence, and price discovery in public asset marketplaces. For the first time, this paper models a hybrid auction with both PV and CV components. We nest two auction theory paradigms for the HDA with a two-dimensional signal model and report a strategic analysis of equilibrium bidding behavior. The findings reveal that: (1) increased competition can mitigate the negative effect of uncertainty about the CV on revenue and bidding behavior; (2). Dynamic inconsistency benefits both parties. (3) Interestingly, the correct answer to the dilemma between attracting more buyers and gathering more information depends on the precision of the seller's disclosed information.