A Model of Auction Equilibrium with Costly Information Acquisition
This paper presents a simple model of auction equilibrium. The distinctive feature of the model is that each bidder may discover the value that the item represents for herself, provided she spends some amount in order to be well informed. For each agent, the decision of whether or not to acquire information depends on a private cost of information acquisition and on her conjectures regarding the behavior of other bidders. A rational expectations equilibrium is characterized.