Pre-auction strategic communication

Abstract

High-stakes auctions are often preceded by nonbinding communication between bidders and the seller. I study a two-period model in which bidders privately send cheap-talk messages to the seller about their valuations before the seller decides whether to run a mechanism or take a forfeitable outside option. The seller has commitment within the second-period mechanism but not over how she uses first-period communication. In monotone bidder-symmetric equilibria, an unrestricted seller runs at most one mechanism on the equilibrium path: a second-price auction with a common reserve, and only when all bidders report values above a common threshold. Thus discriminatory auctions cannot arise in equilibrium, despite asymmetric on-path posteriors. With two bidders, the seller is better off, and can sometimes attain her full-commitment payoff, if she can commit ex-ante to second-price auctions with a common reserve.