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Procurement Auctions with General Price-Quality Evaluation

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Author Info

  • Makoto HANAZONO

    ()
    (School of Economics, Nagoya University)

  • Jun NAKABAYASHI

    ()
    (Institute of Social and Economic Research, Osaka University)

  • Masanori TSURUOKA

    ()
    (Department of Economics, University of Tokyo)

Abstract

We offer a general framework to study procurement auctions when quality matters. In this environment, sellers compete for a project by bidding a price-quality pair, and the winning bidder is determined by the score assigned to each bid. In contrast to the existing study in which only the quasilinear scoring rule is considered, our analysis allows a broad class of scoring rules including many other realistic ones. We focus on the analyses of the equilibrium bidding behavior of first-score (FS) and second-score (SS) auctions. We find that FS or SS auctions can be transformed into equivalent, single-dimensional score-bid auctions where the bidder's utility (payoff upon winning) is non-linear in the score-bid. Our analysis demonstrates that the ranking of the two auction formats, in terms of expected scores, depends on the scoring rule and that the equivalence fails unless scoring rules are quasilinear. FS auctions induce less aggressive bidding than SS auctions if, for example, the scoring rule is price-quality ratio (PQR).

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File URL: http://www.kier.kyoto-u.ac.jp/DP/DP845.pdf
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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 845.

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Length: 24pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:kyo:wpaper:845

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Related research

Keywords: scoring auctions; non-quasilinear scoring rules; procurement;

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References

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  1. Jun Nakabayashi, 2010. "Small Business Set-asides in Procurement Auctions: An Empirical Analysis," Global COE Hi-Stat Discussion Paper Series gd09-126, Institute of Economic Research, Hitotsubashi University.
  2. repec:att:wimass:9123 is not listed on IDEAS
  3. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
  4. Bergman, Mats & Lundberg, Sofia, 2011. "Tender Evaluation and Award Methodologies in Public Procurement," UmeÃ¥ Economic Studies 821, Umeå University, Department of Economics.
  5. Robert G. Hansen, 1988. "Auctions with Endogenous Quantity," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 44-58, Spring.
  6. Fernando Branco, 1997. "The Design of Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 63-81, Spring.
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Cited by:
  1. Thomas Giebe & Paul Schweinzer, 2013. "Probabilistic Procurement Auctions," CESifo Working Paper Series 4320, CESifo Group Munich.

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