sg 16(10): e5

Research Article

Auction Design with Advised Bidders

  • @ARTICLE{10.4108/eai.8-8-2015.2260860,
        author={Andrey Malenko and Anton Tsoy},
        title={Auction Design with Advised Bidders},
        journal={EAI Endorsed Transactions on Serious Games},
        keywords={auction design, cheap-talk, full revelation, english auction, communication},
  • Andrey Malenko
    Anton Tsoy
    Year: 2015
    Auction Design with Advised Bidders
    DOI: 10.4108/eai.8-8-2015.2260860
Andrey Malenko1,*, Anton Tsoy2
  • 1: MIT Sloan School of Management
  • 2: EIEF
*Contact email:


This paper studies efficient and optimal auction design where bidders do not know their values and solicit advice from informed but biased advisors via a cheap-talk game. When advisors are biased toward overbidding, we characterize efficient equilibria of static auctions and equilibria of the English auction under the NITS condition (Chen, Kartik and Sobel (2008)). In static auctions, advisors transmit a coarsening of their information and a version of the revenue equivalence holds. In contrast, in the English auction, information is transmitted perfectly from types in the bottom of the distribution, and pooling happens only at the top. Under NITS, any equilibrium of the English auction dominates any efficient equilibrium of any static auction in terms of both efficiency and the seller's revenue. The distinguishing feature of the English auction is that information can be transmitted over time and bidders cannot submit bids below the current price of the auction. This results in a higher efficiency due to better information transmission and allows the seller to extract additional profits from the overbidding bias of advisors. When advisors are biased toward underbidding, there is an equilibrium of the Dutch auction that is more efficient than any efficient equilibrium of any static auction, however, it can bring lower expected revenue.