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Optimal Use of Rewards as Commitment Device When Bidding Is Costly

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  • Hu Luke

    (Humboldt University of Berlin, Institute of Economic Theory I, Berlin, Germany)

Abstract

This paper considers procurement auctions with costly bidding when the auctioneer is unable to commit himself to restrict the number of bidders. The auctioneer can, however, publicly pledge to pay a financial reward to every contractor he has invited to bid, as an indirect commitment device. Rewards for short-listed bidders are costly. Nevertheless, it is generally optimal for the procurer to credibly implement the same restriction of the number of bidders that is optimal under full commitment.

Suggested Citation

  • Hu Luke, 2013. "Optimal Use of Rewards as Commitment Device When Bidding Is Costly," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 13(1), pages 1-11, May.
    • Handle: RePEc:bpj:bejtec:v:13:y:2013:i:1:p:11:n:10
    DOI: 10.1515/bejte-2012-0015
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    References listed on IDEAS

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    1. Celik Gorkem & Yilankaya Okan, 2009. "Optimal Auctions with Simultaneous and Costly Participation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-33, July.
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