Domenico Colucci () (Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze) Nicola Doni () (Dipartimento di Scienze Economiche, Universita' degli Studi di Firenze) Vincenzo Valori () (Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze)
Abstract
We study a procurement auction recently analysed by Gal-Or et al. (2007). In this auction game the buyer ranks different bids on the basis of both the prices submitted and the quality of each bidder that is her private information. We emphasise the similarity between this model and existing models of competition in horizontally differentiated markets. Finally we illustrate conditions for the existence and the stability of such equilibrium. To this end we extend the model to a dynamic setting in which a sequence of independent auctions takes place. We assume bidders have bounded rationality in a twofold sense. On one hand, they use an underparametrized model of their competitors' behaviour, best responding to expectations on average bids rather than keeping track of the entire vector of competitors' bids. On the other they update expectations adaptively. In a general framework with more than two bidders the system may fail to converge to the steady state, i.e. to the symmetric Nash equilibrium of the original game.
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Publisher Info
Paper provided by Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze in its series DiMaD Working Papers with number
2009-06.
Length: 14 Date of creation: Jun 2009 Date of revision: Publication status: Forthcoming in "Nonlinear Dynamics in Economics, Finance and the Social Sciences: Essays in Honour of John Barkley Rosser Jr." G.I.Bischi, C.Chiarella, L.Gardini eds. Springer, 2010. Handle: RePEc:flo:wpaper:2009-06
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