Auctions with Endogenous Quantity
AbstractThis article studies auctions in which several sellers compete for the right to sell to a market characterized by a negatively sloped demand curve. In this environment the quantity traded becomes endogenous; this effect leads to three results concerning the outcomes of open versus (first-price) sealed-bid auctions. First, an open auction yields a higher expected price than does sealed bidding. Second, and more important, the open auction captures less of the potential gains from trade than does the sealed-bid auction. Third, for broad classes of demand curves, the efficiency gains from switching to sealed bids from an open auction accrue to both sellers and the buyer, so that all concerned parties would agree to the change. A direct application of the theory is to procurement; the heavy use of sealed bidding in procurement is seen as rational in light of these results. Auction models with endogenous quantity could be an alternative to price-setting oligopoly models for the study of price formation in general, for the latter impose strong information requirements on agents and yield only equilibrium price vectors, not equilibrium processes for determining prices.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 19 (1988)
Issue (Month): 1 (Spring)
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Web page: http://www.rje.org
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- Jun Nakabayashi, 2009.
"Small Business Set-asides in Procurement Auctions: An Empirical Analysis,"
Tsukuba Economics Working Papers
2009-005, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba, revised Nov 2009.
- Nakabayashi, Jun, 2013. "Small business set-asides in procurement auctions: An empirical analysis," Journal of Public Economics, Elsevier, vol. 100(C), pages 28-44.
- Jun Nakabayashi, 2010. "Small Business Set-asides in Procurement Auctions: An Empirical Analysis," Global COE Hi-Stat Discussion Paper Series gd09-126, Institute of Economic Research, Hitotsubashi University.
- David S. Salkever & Richard G. Frank, 1995. "Economic Issues in Vaccine Purchase Arrangements," NBER Working Papers 5248, National Bureau of Economic Research, Inc.
- Makoto HANAZONO & Jun NAKABAYASHI & Masanori TSURUOKA, 2013. "Procurement Auctions with General Price-Quality Evaluation," KIER Working Papers 845, Kyoto University, Institute of Economic Research.
- Richard Dutu & Benoit Julien & Ian King, 2009. "Liquidity Constrained Competing Auctions," Department of Economics - Working Papers Series 1068, The University of Melbourne.
- Matthew Ryan & FlÃ¡vio Menezes, 2013. "Default and Renegotiation in PPP Auctions," Discussion Papers Series 484, School of Economics, University of Queensland, Australia.
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