Efficiency versus Optimality in Procurement
AbstractWe study procurement procedures that simultaneously determine specification and price of a good. Suppliers can offer and produce the good in either of two possible specifications, both of which are equally good for the buyer. Production costs are interdependent and unknown at the time of bidding. Each supplier receives two signals about production cost, one per specification. Our model is a special case of the interdependent-value settings with multi-dimensional types in Jehiel and Moldovanu (2001) where an efficient and incentive compatible mechanism exists. We characterize equilibrium bidding behavior if the winning supplier is selected purely on the basis of price, regardless of the specification offered. While there is a positive chance of obtaining an inefficient specification, this procurement mechanism involves lower information rents than efficient mechanisms, suggesting that there is a trade-off between minimizing expected expenditure for the good, and ensuring that the efficient specification is chosen.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 11-03rr.
Length: 53 pages
Date of creation: Dec 2011
Date of revision:
Procurement; interdependent valuations; multi-dimensional information; efficient mechanisms; optimal mechanisms;
Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-18 (All new papers)
- NEP-CTA-2012-01-18 (Contract Theory & Applications)
- NEP-GTH-2012-01-18 (Game Theory)
- NEP-MIC-2012-01-18 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Asker & Estelle Cantillon, 2010.
"Procurement when price and quality matter,"
RAND Journal of Economics,
RAND Corporation, vol. 41(1), pages 1-34.
- John Asker & Estelle Cantillon, 2010. "Procurement when Price and Quality Matter," ULB Institutional Repository 2013/99378, ULB -- Universite Libre de Bruxelles.
- John Asker & Estelle Cantillon, 2006. "Procurement When Price and Quality Matter," Working Papers 06-24, New York University, Leonard N. Stern School of Business, Department of Economics.
- Asker, John & Cantillon, Estelle, 2007. "Procurement when Price and Quality Matter," CEPR Discussion Papers 6082, C.E.P.R. Discussion Papers.
- Dirk Bergemann & Martin Pesendorfer, 2001.
"Information Structures in Optimal Auctions,"
Cowles Foundation Discussion Papers
1323, Cowles Foundation for Research in Economics, Yale University.
- Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1999.
"Multidimensional Mechanism Design for Auctions with Externalities,"
Journal of Economic Theory,
Elsevier, vol. 85(2), pages 258-293, April.
- Jehiel, Phillipe & Moldovanu, Benny & Stacchetti, E., 1997. "Multidimensional Mechanism Design for Auctions with Externalities," Sonderforschungsbereich 504 Publications 97-04, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
- Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
- Krishna, Vijay & Maenner, Eliot, 2001. "Convex Potentials with an Application to Mechanism Design," Econometrica, Econometric Society, vol. 69(4), pages 1113-19, July.
- Anja Schöttner, 2008.
"Fixed-prize tournaments versus first-price auctions in innovation contests,"
Springer, vol. 35(1), pages 57-71, April.
- Anja Schöttner, 2005. "Fixed-Prize Tournaments versus First-Price Auctions in Innovation Contests," SFB 649 Discussion Papers SFB649DP2005-041, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Ewerhart, Christian & Fieseler, Karsten, 2003.
" Procurement Auctions and Unit-Price Contracts,"
RAND Journal of Economics,
The RAND Corporation, vol. 34(3), pages 569-81, Autumn.
- Rochet, Jean-Charles, 1987. "A necessary and sufficient condition for rationalizability in a quasi-linear context," Journal of Mathematical Economics, Elsevier, vol. 16(2), pages 191-200, April.
- Jean-Jaques Laffont & Jean Tirole, 1985.
"Auctioning Incentive Contracts,"
403, Massachusetts Institute of Technology (MIT), Department of Economics.
- Jehiel, Phillipe & Moldovanu, Benny, 1998.
"Efficient Design with Interdependent Valuations,"
Sonderforschungsbereich 504 Publications
98-22, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
- Jehiel, Phillipe & Moldovanu, Benny, 1999. "Efficient Design with Interdependent Valuations," Sonderforschungsbereich 504 Publications 99-74, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
- Philippe Jehiel & Benny Moldovanu, 1998. "Efficient Design with Interdependent Valuations," Discussion Papers 1244, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Athey, S., 1997.
"Sigle Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information,"
97-11, Massachusetts Institute of Technology (MIT), Department of Economics.
- Athey, Susan, 2001. "Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Econometrica, Econometric Society, vol. 69(4), pages 861-89, July.
- Harrison Cheng & Guofu Tan, 2010. "Asymmetric common-value auctions with applications to private-value auctions with resale," Economic Theory, Springer, vol. 45(1), pages 253-290, October.
- Milgrom,Paul, 2004.
"Putting Auction Theory to Work,"
Cambridge University Press, number 9780521551847, April.
- Partha Dasgupta & Eric Maskin, 2000.
The Quarterly Journal of Economics,
MIT Press, vol. 115(2), pages 341-388, May.
- P. Dasgupta & Eric Maskin, 1998. "Efficient Auctions," Harvard Institute of Economic Research Working Papers 1857, Harvard - Institute of Economic Research.
- Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
- Yeon-Koo Che, 1993.
"Design Competition through Multidimensional Auctions,"
RAND Journal of Economics,
The RAND Corporation, vol. 24(4), pages 668-680, Winter.
- Fernando Branco, 1997. "The Design of Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 63-81, Spring.
- Leonardo Rezende, 2009. "Biased procurement auctions," Economic Theory, Springer, vol. 38(1), pages 169-185, January.
- Asher Wolinsky & Stephan Lauermann, 2009. "Search with Adverse Selection," 2009 Meeting Papers 827, Society for Economic Dynamics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Colin Rowat).
If references are entirely missing, you can add them using this form.