Revenue Comparison in Asymmetric Auctions with Discrete Valuations

Abstract

We consider an asymmetric auction setting with two bidders such that the valuation of each bidder has a binary support. We prove that in this context the second price auction yields a higher expected revenue than the first price auction for a broad set of parameter values, although the opposite result is common in the literature on asymmetric auctions. For instance, the second price auction is superior both when a bidder’s valuation is more uncertain that the valuation of the other bidder, and in case of a not too large distribution shift or rescaling. In addition, we show that in some cases the revenue in the first price auction decreases when all the valuations increase [in doing so, we correct a claim in Maskin and Riley (1985), and we derive the bidders’ preferences between the two auctions.Asymmetric auctions, First price auctions, Second price auctions.