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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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-07/cesifo1_wp4320.pdf
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Bibliographic Info

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) 717, Bank of Italy, Economic Research and International Relations Area.
  2. Christian Ewerhart, 2010. "Rent-seeking contests with independent private values," IEW - Working Papers 490, Institute for Empirical Research in Economics - University of Zurich.
  3. Kaplan, Todd, et al, 2002. "All-Pay Auctions with Variable Rewards," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 417-30, December.
  4. 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.
  5. Luis Corchón, 2007. "The theory of contests: a survey," Review of Economic Design, Springer, vol. 11(2), pages 69-100, September.
  6. Michelle R. Garfinkel & Stergios Skaperdas, 2006. "Economics of Conflict: An Overview," Working Papers 050623, University of California-Irvine, Department of Economics, revised Sep 2006.
  7. Maria Arbatskaya & Hugo Mialon, 2010. "Multi-activity contests," Economic Theory, Springer, vol. 43(1), pages 23-43, April.
  8. Lambert Schoonbeek & Barbara Winkel, 2006. "Activity and inactivity in a rent-seeking contest with private information," Public Choice, Springer, vol. 127(1), pages 123-132, April.
  9. Wärneryd, Karl, 2000. "Information in Conflicts," Working Paper Series in Economics and Finance 388, Stockholm School of Economics.
  10. Corchón, Luis C. & Dahm, Matthias, 2008. "Foundations for contest success functions," Working Papers 2072/9493, Universitat Rovira i Virgili, Department of Economics.
  11. Mark Fey, 2008. "Rent-seeking contests with incomplete information," Public Choice, Springer, vol. 135(3), pages 225-236, June.
  12. Hurley, Terrance M. & Shogren, Jason F., 1998. "Asymmetric information contests," European Journal of Political Economy, Elsevier, vol. 14(4), pages 645-665, November.
  13. Hao Jia, 2008. "A stochastic derivation of the ratio form of contest success functions," Public Choice, Springer, vol. 135(3), pages 125-130, June.
  14. Alex Gershkov & Jianpei Li & Paul Schweinzer, 2009. "Efficient tournaments within teams," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 103-119.
  15. Leonid Polishchuk & Alexander Tonis, 2013. "Endogenous contest success functions: a mechanism design approach," Economic Theory, Springer, vol. 52(1), pages 271-297, January.
  16. Qiang Fu & Jingfeng Lu, 2012. "Micro foundations of multi-prize lottery contests: a perspective of noisy performance ranking," Social Choice and Welfare, Springer, vol. 38(3), pages 497-517, March.
  17. Makoto HANAZONO & Jun NAKABAYASHI & Masanori TSURUOKA, 2013. "Procurement Auctions with General Price-Quality Evaluation," KIER Working Papers 845, Kyoto University, Institute of Economic Research.
  18. Juan David Prada-Sarmiento, 2010. "Uncertainty in conflicts," DOCUMENTOS CEDE 007713, UNIVERSIDAD DE LOS ANDES-CEDE.
  19. Ryvkin, Dmitry, 2010. "Contests with private costs: Beyond two players," European Journal of Political Economy, Elsevier, vol. 26(4), pages 558-567, December.
  20. David A. Malueg & Andrew J. Yates, 2004. "Sent Seeking With Private Values," Public Choice, Springer, vol. 119(1_2), pages 161-178, 04.
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