Strategic signaling and free information disclosure in auctions

Abstract

With the increasing interest in the role information providers play in multi-agent systems, much effort has been dedicated to analyzing strategic information disclosure and signaling by such agents. This paper analyzes the problem in the context of auctions (specifically for second-price auctions). It provides an equilibrium analysis to the case where the information provider can use signaling according to some precommitted scheme before introducing its regular (costly) information selling offering. The signal provided, publicly discloses (for free) some of the information held by the information provider. Providing the signaling is thus somehow counter intuitive as the information provider ultimately attempts to maximize her gain from selling the information she holds. Still, we show that such signaling capability can be highly beneficial for the information provider and even improve social welfare. Furthermore, the examples provided demonstrate various possible other beneficial behaviors available to the different players as well as to a market designer, such as paying the information provider to leave the system or commit to a specific signaling scheme. Finally, the paper provides an extension of the underlying model, related to the use of mixed signaling strategies.