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First-Price Equilibrium and Revenue Equivalence in a Sequential Procurement Auction Model

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Author Info
Reiss, J. Philipp
Schöndube Jens Robert (METEOR)

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Abstract

We analyze first-price equilibrium bidding behavior of capacity-constrained firms in a sequence of two procurement auctions. In the model, firms with a cost advantage in completing the project auctioned off at the end of the sequence may enter the unfavored first auction hoping to lose it. Equilibrium bidding in both auctions deviates from the standard Symmetric Independent Private Value auction model (SIPV) due to opportunity costs of bidding created by possibly employed capacity.For this sequential auction model with non-identical objects, we show that revenue equivalence holds.

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Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 003.

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Date of creation: 2007
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Handle: RePEc:dgr:umamet:2007003

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Keywords: microeconomics ;

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  1. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June. [Downloadable!] (restricted)
  2. Gale, Ian L & Hausch, Donald B & Stegeman, Mark, 2000. "Sequential Procurement with Subcontracting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(4), pages 989-1020, November.
  3. Marco Celentani & Juan J. Ganuza, 2000. "Corruption and Competition in Procurement," Economics Working Papers 464, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2001. [Downloadable!]
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  4. Milgrom, Paul, 1989. "Auctions and Bidding: A Primer," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 3-22, Summer. [Downloadable!] (restricted)
  5. Luton, Richard & McAfee, R. Preston, 1986. "Sequential procurement auctions," Journal of Public Economics, Elsevier, vol. 31(2), pages 181-195, November. [Downloadable!] (restricted)
  6. Jofre-Bonet, Mireia & Pesendorfer, Martin, 2000. "Bidding behavior in a repeated procurement auction: A summary," European Economic Review, Elsevier, vol. 44(4-6), pages 1006-1020, May. [Downloadable!] (restricted)
  7. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June. [Downloadable!] (restricted)
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  8. De Silva, Dakshina G. & Dunne, Timothy & Kosmopoulou, Georgia, 2002. "Sequential bidding in auctions of construction contracts," Economics Letters, Elsevier, vol. 76(2), pages 239-244, July. [Downloadable!] (restricted)
  9. Riordan, Michael H & Sappington, David E M, 1987. "Awarding Monopoly Franchises," American Economic Review, American Economic Association, vol. 77(3), pages 375-87, June. [Downloadable!] (restricted)
  10. Robert J. Weber, 1981. "Multiple-Object Auctions," Discussion Papers 496, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  11. Dakshina G. De Silva & Timothy Dunne & Georgia Kosmopoulou, 2003. "An Empirical Analysis of Entrant and Incumbent Bidding in Road Construction Auctions," Journal of Industrial Economics, Blackwell Publishing, vol. 51(3), pages 295-316, 09. [Downloadable!] (restricted)
  12. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, vol. 71(5), pages 1443-1489, 09. [Downloadable!] (restricted)
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  13. Dasgupta, Sudipto & Spulber, Daniel F., 1989. "Managing procurement auctions," Information Economics and Policy, Elsevier, vol. 4(1), pages 5-29. [Downloadable!] (restricted)
  14. Wolfstetter, Elmar, 1996. " Auctions: An Introduction," Journal of Economic Surveys, Blackwell Publishing, vol. 10(4), pages 367-420, December.
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  15. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-45, June. [Downloadable!] (restricted)
  16. Brosig, Jeannette & Rei[ss], J. Philipp, 2007. "Entry decisions and bidding behavior in sequential first-price procurement auctions: An experimental study," Games and Economic Behavior, Elsevier, vol. 58(1), pages 50-74, January. [Downloadable!] (restricted)
  17. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
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