Empirical Tests of Information Aggregation

Executive Summary:

While neither buyers nor sellers may be certain of the worth of used goods, both may possess private information about the value. Do prices become more informative as the number of bidders grows? Using data from a sample of eBay auctions for computers, Yin looked at how and under what conditions auction prices converge to the common value of a given item. Key concepts include:

• Ebay prices do become more meaningful as the number of bidders increases; however, there is insufficient evidence to conclude that they aggregate information as fully as they could, given the number of bidders.
• Even partial information aggregation by eBay auction prices suggests a potential efficiency gain over one-to-one trade of used goods with uncertain common values