This paper studies the role of information asymmetries in second price, common value auctions. Motivated by information structures that arise commonly in applications such as online advertising, we seek to understand what types of information asymmetries lead to substantial reductions in revenue for the auctioneer. One application of our results concerns online advertising auctions in the presence of “cookies”, which allow individual advertisers to recognize advertising opportunities for users who, for example, are customers of their websites. Cookies create substantial information asymmetries both ex ante and at the interim stage, when advertisers form their beliefs. The paper proceeds by first introducing a new refinement, which we call “tremble robust equilibrium” (TRE), which overcomes the problem of multiplicity of equilibria in many domains of interest.
Second, we consider a special information structure, where only one bidder has access to superior information, and show that the seller’s revenue in the unique TRE is equal to the expected value of the object conditional on the lowest possible signal, no matter how unlikely it is that this signal is realized. Thus, if cookies identify especially good users, revenue may not be affected much, but if cookies can (even occasionally) be used to identify very poor users, the revenue consequences are severe. In the third part of the paper, we study the case where multiple bidders may be informed, providing additional characterizations of the impact of information structure on revenue. Finally, we consider richer market designs that ensure greater revenue for the auctioneer, for example by auctioning the right to participate in the mechanism.