Effects of information revelation policies under cost uncertainty

The paper presents insights regarding the key learning-related factors a buyer should consider when deciding Tthe extent to which information about bids is revealed in a procurement auction context. It offers the insights by analyzing the following two first-price sealed-bid policies in a private-value sequential auction with no winner dropouts: (i) iis, where only the winner's bid is revealed, and (ii) cis, where all bids are revealed. Our analysis identifies two important learning effects-the extraction and the deception effects-as having significant welfare implications. Both these effects arise because of a bidder's desire to gain an informational advantage relative to his competitors, but their manifestations are different. The extraction effect occurs because of a bidder's incentive to learn about his competitors, and the deception effect is a consequence of the incentive to prevent an opponent from gaining the information. Both effects lead to higher bid prices, and either may be dominant from a procurer surplus standpoint. With the deception effect, social welfare can decrease even when the number of suppliers increases, a result that is counterintuitive. The paper also discusses how insights regarding the learning effects might apply to other policies.