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Optimal Use of Rewards as Commitment Device When Bidding is Costly

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  • Hu, Luke
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    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.

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    File URL: http://epub.ub.uni-muenchen.de/13177/1/377.pdf
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    Bibliographic Info

    Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 377.

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    Date of creation: Feb 2012
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    Handle: RePEc:trf:wpaper:377

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    Keywords: Procurement; auctions; industrial organization; mechanism design;

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    1. Gal, Shmuel & Landsberger, Michael & Nemirovski, Arkadi, 2007. "Participation in auctions," Games and Economic Behavior, Elsevier, vol. 60(1), pages 75-103, July.
    2. Fan, Cuihong & Wolfstetter, Elmar, 2008. "Procurement with costly bidding, optimal shortlisting, and rebates," Economics Letters, Elsevier, vol. 98(3), pages 327-334, March.
    3. Kaplan, Todd & Sela, Aner, 2003. "Auctions with Private Entry Costs," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4080, C.E.P.R. Discussion Papers.
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