Market Selection and the Information Content of Prices

Abstract

We study information aggregation when n bidders choose, based on their private information, between two concurrent common‐value auctions. There are k s identical objects on sale through a uniform‐price auction in market s and there are an additional k r objects on auction in market r, which is identical to market s except for a positive reserve price. The reserve price in market r implies that information is not aggregated in this market. Moreover, if the object‐to‐bidder ratio in market s exceeds a certain cutoff, then information is not aggregated in market s either. Conversely, if the object‐to‐bidder ratio is less than this cutoff, then information is aggregated in market s as the market grows arbitrarily large. Our results demonstrate how frictions in one market can disrupt information aggregation in a linked, frictionless market because of the pattern of market selection by imperfectly informed bidders.