Information Aggregation in Large Auctions

We introduce a property of information--the betweenness property--that characterizes when prices can aggregate information in a large common-value auction. To establish prices that aggregate information, the previous... [ view full abstract ]

We introduce a property of information--the betweenness property--that characterizes when prices can aggregate information in a large common-value auction. To establish prices that aggregate information, the previous literature has imposed that signals satisfy the monotone likelihood ratio property. The betweenness property has a direct connection with the MLRP, but imposes significantly fewer restrictions on information. Our sufficiency results therefore shows that auction prices can aggregate information in many environments where the literature currently makes no predictions about the informational efficiency of prices. Our necessity result shows that further generalization is not possible: when information does not satisfy the betweenness property, equilibrium prices cannot aggregate information.