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Investment Incentives in Procurement Auctions Author info | Abstract | Publisher info | Download info | Related research | Statistics Leandro Arozamena (University of San Andres, Argentina)
Estelle Cantillon (Cowles Foundation, Yale University )
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We investigate firms' incentives for cost reduction in the first price sealed bid auction, a format largely used for procurement. A central feature of the model is that we allow firms to be heterogeneous. Though private value first price auctions are not games with monotonic best responses, we find that for comparative statics purposes they behave like these games. In particular, firms will tend to underinvest in cost reduction because they anticipate fiercer head-on competition. Using the second price auction as a benchmark, we also find that the first price auction will elicit less investment from market participants. Moreover, both auction formats tend to favor investment by the current market leader and are therefore likely to reinforce asymmetries among market participants.
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Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number
1276.
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Length: 41 pages
Date of creation: Sep 2000Date of revision:
Handle: RePEc:cwl:cwldpp:1276Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA Phone: (203) 432-3702 Fax: (203) 432-6167 Web page: http://cowles.econ.yale.edu/ More information through EDIRC
Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
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Keywords: Asymmetric auctions ; endogenous distributions ; investment incentives ; Other versions of this item:
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D44 - Microeconomics - - Market Structure and Pricing - - - Auctions L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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