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Procurement Auctions and Unit-Price Contracts

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  • Ewerhart, Christian
  • Fieseler, Karsten
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    Abstract

    In competitive procurement auctions, bids often have the form of unit-price contracts (UPCs). We show that optimal bidding behavior in UPC auctions is typically nonmonotonic and therefore may lead to inefficient allocations. However, UPC auctions may still be desirable for the buyer when compared to efficient mechanisms such as the first-price auction. In a UPC auction, low types are subsidized, and the resulting stronger competition reduces the winning bidder's informational rent, which overcompensates the efficiency loss. Copyright 2003 by the RAND Corporation.

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    Bibliographic Info

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

    Volume (Year): 34 (2003)
    Issue (Month): 3 (Autumn)
    Pages: 569-81

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    Handle: RePEc:rje:randje:v:34:y:2003:i:3:p:569-81

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    Cited by:
    1. Araujo, Aloisio & Castro, Luciano I. de & Moreira, Humberto, . "Non-monotoniticies and the all-pay auction tie-breaking rule," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/434, Universidad Carlos III de Madrid.
    2. Paul H. Jensen & Robin E. Stonecash, 2005. "Contract Efficiency in the Presence of Demand and Cost Uncertainty," Melbourne Institute Working Paper Series wp2005n01, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    3. Moreira, Humberto Ataíde & Araújo, Aloísio Pessoa de & Castro Filho, Luciano I. de Castro Filho, 2004. "Pure strategy equilibria of multidimensional and Non-monotonic auctions," Economics Working Papers (Ensaios Economicos da EPGE) 571, Graduate School of Economics, Getulio Vargas Foundation (Brazil).

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