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Communication of preferences in contests for contracts

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  • Todd Kaplan

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Abstract

This paper models a contest where several sellers compete for a contract with a single buyer. There are several styles of possible designs with a subset of them preferred by the buyer. We examine what happens when the buyer communicates information about his preferences. If the sellers are unable to change their style, then there is no effect on the welfare of the sellers. If the sellers are able to make adjustments, extra information may either boost or damage the sellers’ profits. While the chance that there will be a proposal of a style preferred by the buyer cannot decrease, the buyer’s surplus may increase or decrease. Copyright Springer-Verlag 2012

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File URL: http://hdl.handle.net/10.1007/s00199-010-0525-2
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 51 (2012)
Issue (Month): 2 (October)
Pages: 487-503

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Handle: RePEc:spr:joecth:v:51:y:2012:i:2:p:487-503

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Related research

Keywords: Contests; Procurement; Communication; D44; H57;

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References

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  1. Kaplan, Todd R. & Luski, Israel & Wettstein, David, 2003. "Innovative activity and sunk cost," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1111-1133, October.
  2. Dirk Bergemann & Martin Pesendorfer, 2001. "Information Structures in Optimal Auctions," Cowles Foundation Discussion Papers 1323, Cowles Foundation for Research in Economics, Yale University.
  3. Todd Kaplan, 2006. "Why banks should keep secrets," Economic Theory, Springer, vol. 27(2), pages 341-357, January.
  4. Che, Yeon-Koo & Gale, Ian L, 1998. "Caps on Political Lobbying," American Economic Review, American Economic Association, vol. 88(3), pages 643-51, June.
  5. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  6. Cremer, Jacques & Khalil, Fahad, 1992. "Gathering Information before Signing a Contract," American Economic Review, American Economic Association, vol. 82(3), pages 566-78, June.
  7. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  8. Péter Eső & Bal�zs Szentes, 2007. "Optimal Information Disclosure in Auctions and the Handicap Auction," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 705-731.
  9. Kovenock, D. & de Vries, C.G., 1995. "The All-Pay Auction with Complete Information," UFAE and IAE Working Papers 311.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  10. Lee, Tom K., 1985. "Competition and information acquisition in first price auctions," Economics Letters, Elsevier, vol. 18(2-3), pages 129-132.
  11. Amann, Erwin & Leininger, Wolfgang, 1996. "Asymmetric All-Pay Auctions with Incomplete Information: The Two-Player Case," Games and Economic Behavior, Elsevier, vol. 14(1), pages 1-18, May.
  12. Dirk Bergemann & Juuso Vaimaki, 2000. "Information Acquisition and Efficient Mechanism Design," Cowles Foundation Discussion Papers 1248, Cowles Foundation for Research in Economics, Yale University.
  13. Alex Gershkov, 2009. "Optimal auctions and information disclosure," Review of Economic Design, Springer, vol. 13(4), pages 335-344, December.
  14. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
  15. Todd R. Kaplan & David Wettstein, 2006. "Caps on Political Lobbying: Comment," American Economic Review, American Economic Association, vol. 96(4), pages 1351-1354, September.
  16. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers 762, UCLA Department of Economics.
  17. Juan José Ganuza, 2003. "Competition and cost overruns in procurement," Economics Working Papers 772, Department of Economics and Business, Universitat Pompeu Fabra.
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Citations

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Cited by:
  1. Kai Konrad & Dan Kovenock, 2012. "Introduction," Economic Theory, Springer, vol. 51(2), pages 241-245, October.
  2. Nicola Doni & Domenico Menicucci, 2011. "Information revelation in procurement auctions with two-sided asymmetric information," Working Papers - Economics wp2011_14.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.

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