Common Values vs. Private Values in Auctions

In the common-value model,the actual value is the same for everyone, but bidders have different private information ("signals") about what that value actually is. In this case a bidder would change her estimate of the value if she learned another bidder's signal.

In contrast, in private-values model,each bidder knows how much he values the object for sale but his value is private information. In contrast to the common-value setting,a bidder's value would be unaffected by learning any other bidder's information.

In-between

In practice, many goods have neither purely private values nor purely common values. Consider a work of art. It is likely to have an important private value aspect (where each individual bidder alone knows how much she likes or dislikes the work), but also a significant common value aspect (because anyone who wins the auction may decide to resell the work later).

The presence of asymmetric information is another key feature in auction theory.