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The Contractors' Game

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Author Info

  • Kevin Lang
  • Robert W. Rosenthal

Abstract

We develop a symmetric-information auction model of multiproject contracting with costly bidding and increasing marginal performance costs. When there are many potential contractors or only one job, there is a zero-expected-profit symmetric equilibrium in mixed strategies. The winning bid at this equilibrium tends to rise (perversely) with the number of contractors. When there are only two potential bidders and either two or three jobs, multiple bids of a contractor at equilibrium are negatively correlated with each other. The resulting equilibrium outcome tends to divide the market between the contractors in a manner that suggests anticompetitive behavior despite the absence of any collusion.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 22 (1991)
Issue (Month): 3 (Autumn)
Pages: 329-338

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Handle: RePEc:rje:randje:v:22:y:1991:i:autumn:p:329-338

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Cited by:
  1. Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark E. Votruba, 2008. "Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance," NBER Working Papers 14455, National Bureau of Economic Research, Inc.
  2. Cramton, Peter C, 1995. "Money Out of Thin Air: The Nationwide Narrowband PCS Auction," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 267-343, Summer.
  3. Eric Rasmusen, 1996. "Bertrand Competition Under Uncertainty," Industrial Organization 9607002, EconWPA.
  4. repec:dgr:uvatin:2098083 is not listed on IDEAS
  5. Israel J. Hernández & Elena Huergo Orejas, 2004. "Entrada y Competencia en los Servicios de Telecomunicaciones," Documentos del Instituto Complutense de Análisis Económico 0404, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
  6. Maarten C.W. Janssen & Eric Rasmusen, 1998. "Bertrand Competition under Uncertainty," Tinbergen Institute Discussion Papers 98-083/1, Tinbergen Institute.

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