Abstract

In this paper, I model a second price auction with an informed and an uninformed bidder and find the optimal information revealing strategy followed by the informed bidder at equilibrium. The informed bidder knows the state of the world with certainty, but the uninformed bidder does not know it. The informed buyer can commit to a strategy to reveal information to the uninformed buyer. The uninformed buyer then updates his belief about the state of the world based on the information revealed. I characterize the information revealing strategy that maximizes the expected payoff of the informed bidder. The strategy depends upon the state of the world, valuation of the informed bidder, and the distribution of valuations of the uninformed bidder for the object in the auction. The social planner's optimal decision would be to reveal complete information to remove the inefficiencies in the auction due to information asymmetry.