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Auctions With A Minimum Requirement Of Bids

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  • Ferdinando Colombo

Abstract

We show that in a procurement auction with independent and private costs of production and a positive cost of preparing a bid, the requirement of a minimum number of offers for the good to be bought always yields a unique (perfect) Bayesian equilibrium where no firm enters a bid, whatever its cost of production, the number of potential bidders and the size of the bidding cost. To avoid the no‐bid result, the buyer can commit to subsidise the losing bidders in certain circumstances. Alternatively, it can use a stochastic auction, where the provider of the good is not always the firm that bids the lowest price.

Suggested Citation

  • Ferdinando Colombo, 2003. "Auctions With A Minimum Requirement Of Bids," Australian Economic Papers, Wiley Blackwell, vol. 42(4), pages 363-372, December.
    • Handle: RePEc:bla:ausecp:v:42:y:2003:i:4:p:363-372
    DOI: 10.1111/1467-8454.00204
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    Cited by:

    1. Rolfe, John & Windle, Jill, 2006. "Using Field Experiments to Explore the Use of Multiple Bidding Rounds in Conservation Auctions," Discussion Papers 25801, International Association of Agricultural Economists.
    2. John Rolfe & Jill Windle & Juliana McCosker, 2009. "Testing and Implementing the Use of Multiple Bidding Rounds in Conservation Auctions: A Case Study Application," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(3), pages 287-303, September.

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