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Optimal Use of Rewards as Commitment Device When Bidding is Costly

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  • Hu, Luke

Abstract

This paper considers procurement auctions with costly bidding when the auctioneer is unable to commit himself to restrict the number of bidders. The auctioneer can, however, offer a financial reward to be paid to every short-listed bidders as an indirect commitment device. Rewards for short-listed bidders are costly. Nevertheless, it is generally optimal for the procurer to credibly implement the same restriction of the number of bidders that is optimal under full commitment.

Suggested Citation

  • Hu, Luke, 2012. "Optimal Use of Rewards as Commitment Device When Bidding is Costly," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 377, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:377
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    File URL: https://epub.ub.uni-muenchen.de/13177/1/377.pdf
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    References listed on IDEAS

    as
    1. Sela, Aner & Kaplan, Todd, 2003. "Auctions with Private Entry Costs," CEPR Discussion Papers 4080, C.E.P.R. Discussion Papers.
    2. Gal, Shmuel & Landsberger, Michael & Nemirovski, Arkadi, 2007. "Participation in auctions," Games and Economic Behavior, Elsevier, vol. 60(1), pages 75-103, July.
    3. Fan, Cuihong & Wolfstetter, Elmar, 2008. "Procurement with costly bidding, optimal shortlisting, and rebates," Economics Letters, Elsevier, vol. 98(3), pages 327-334, March.
    4. Tan, Guofu, 1992. "Entry and R & D in procurement contracting," Journal of Economic Theory, Elsevier, vol. 58(1), pages 41-60, October.
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    More about this item

    Keywords

    Procurement; auctions; industrial organization; mechanism design;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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