The effect of bidders' asymmetries on expected revenue in auctions

Bidders' asymmetries are widespread in auction markets. Yet, their impact on behavior and, ultimately, revenue and profits is still not well understood. This paper defines a natural benchmark auction environment to which to compare any private values auction with asymmetrically distributed valuations. The main result is that the expected revenue from the benchmark auction dominates that from the asymmetric auction, both in the first price auction and the second price auction. Moreover, for classes of distributions that lend themselves to a quasi-ordering of more or less asymmetric configurations, we prove that the expected revenue is lower the more asymmetric bidders are. These results formalize the idea that competition is reduced by bidders' asymmetries. Applications to merger analysis, joint bidding and investment are discussed.