Insider information in auctions leads to higher seller revenue.
The article explores how differences in information between bidders impact common value auctions. It investigates whether sellers should favor bids from bidders with more accurate information and how this affects revenue. The study shows that in auctions where an insider competes with an outsider, the optimal mechanism is biased against the insider. Surprisingly, the seller's expected revenue is higher when bidders have more unequal information. The best way to implement this optimal mechanism is through a second-price sealed bid auction that only allows the insider to win if their bid exceeds a certain threshold.