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Probabilistic Procurement Auctions

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  • Thomas Giebe
  • Paul Schweinzer

Abstract

We analyse procurement auctions in which sellers are distinguished on the basis of the ratios of quality per unit of money that they offer. Sellers are privately informed on the offered quality of the technology or good. We assume that the procurer cannot perfectly identify the best offer. Thus, with positive and decreasing probability, the second, third, etc. best ratio offered is selected as the winner of the auction. We model the decision process as based on a general noisy ranking of offers. We show that, although the problem seems to be analytically intractable in general, there exists a simple symmetric, pure-strategy equilibrium in which everyone follows the simple heuristic to match the same ‘focal’ price-quality ratio.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4320.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4320

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Related research

Keywords: auctions; contests; price-quality ratio; procurement; scoring;

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References

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  1. Francesco Decarolis, 2009. "When the highest bidder loses the auction: theory and evidence from public procurement," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 717, Bank of Italy, Economic Research and International Relations Area.
  2. Leonid Polishchuk & Alexander Tonis, 2013. "Endogenous contest success functions: a mechanism design approach," Economic Theory, Springer, Springer, vol. 52(1), pages 271-297, January.
  3. Hurley, Terrance M. & Shogren, Jason F., 1998. "Asymmetric information contests," European Journal of Political Economy, Elsevier, vol. 14(4), pages 645-665, November.
  4. Kaplan, Todd, et al, 2002. "All-Pay Auctions with Variable Rewards," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 50(4), pages 417-30, December.
  5. Corchón, Luis C. & Dahm, Matthias, 2008. "Foundations for contest success functions," Working Papers 2072/9493, Universitat Rovira i Virgili, Department of Economics.
  6. Wärneryd, Karl, 2001. "Information in conflicts," Discussion Papers, Research Unit: Market Processes and Governance FS IV 01-11, Social Science Research Center Berlin (WZB).
  7. Wasser, Cédric, 2010. "Rent-seeking Contests under Symmetric and Asymmetric Information," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 311, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  8. Michelle R. Garfinkel & Stergios Skaperdas, 2006. "Economics of Conflict: An Overview," Working Papers 050623, University of California-Irvine, Department of Economics, revised Sep 2006.
  9. Alex Gershkov & Jianpei Li & Paul Schweinzer, 2009. "Efficient tournaments within teams," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 103-119.
  10. Juan David Prada-Sarmiento, 2010. "Uncertainty in conflicts," DOCUMENTOS CEDE, UNIVERSIDAD DE LOS ANDES-CEDE 007713, UNIVERSIDAD DE LOS ANDES-CEDE.
  11. Christian Ewerhart, 2010. "Rent-seeking contests with independent private values," IEW - Working Papers 490, Institute for Empirical Research in Economics - University of Zurich.
  12. Luis C. Corchon, 2007. "The theory of contests : a survey," Economics Working Papers we075126, Universidad Carlos III, Departamento de Economía.
  13. Qiang Fu & Jingfeng Lu, 2012. "Micro foundations of multi-prize lottery contests: a perspective of noisy performance ranking," Social Choice and Welfare, Springer, Springer, vol. 38(3), pages 497-517, March.
  14. Mark Fey, 2008. "Rent-seeking contests with incomplete information," Public Choice, Springer, Springer, vol. 135(3), pages 225-236, June.
  15. Maria Arbatskaya & Hugo Mialon, 2010. "Multi-activity contests," Economic Theory, Springer, Springer, vol. 43(1), pages 23-43, April.
  16. Lambert Schoonbeek & Barbara Winkel, 2006. "Activity and inactivity in a rent-seeking contest with private information," Public Choice, Springer, Springer, vol. 127(1), pages 123-132, April.
  17. David A. Malueg & Andrew J. Yates, 2004. "Sent Seeking With Private Values," Public Choice, Springer, Springer, vol. 119(1_2), pages 161-178, 04.
  18. Ryvkin, Dmitry, 2010. "Contests with private costs: Beyond two players," European Journal of Political Economy, Elsevier, vol. 26(4), pages 558-567, December.
  19. Hao Jia, 2008. "A stochastic derivation of the ratio form of contest success functions," Public Choice, Springer, Springer, vol. 135(3), pages 125-130, June.
  20. Makoto HANAZONO & Jun NAKABAYASHI & Masanori TSURUOKA, 2013. "Procurement Auctions with General Price-Quality Evaluation," KIER Working Papers 845, Kyoto University, Institute of Economic Research.
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