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Free Riding in Combinatorial First-Price Sealed-Bid Auctions

Author

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  • Maréchal François

    () (CRESE, University of Franche-Comté)

  • Morand Pierre-Henri

    () (CRESE, University of Franche-Comté)

Abstract

We consider an allotted procurement contract awarded by means of a combinatorial first-price sealed-bid auction. Two small firms and a larger firm are competing. Each small firm is interested in a single lot whereas the large firm transmits a global offer. Under a specific informational framework, we derive the asymmetric combinatorial equilibrium bidding strategies and show that they exhibit a free-riding effect. We show that this effect is increasing with the level of uncertainty and decreasing with risk aversion. When all the firms are risk neutral or equally risk averse, the magnitude of the free-riding effect is unaffected by the division of the contract chosen by the public buyer. Nevertheless, when each firm exhibits its own risk aversion parameter, we find that the free-riding effect is reduced (resp. increased) as the more risk averse small firm competes for a larger (resp. smaller) part of the contract.

Suggested Citation

  • Maréchal François & Morand Pierre-Henri, 2009. "Free Riding in Combinatorial First-Price Sealed-Bid Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-24, December.
  • Handle: RePEc:bpj:bejtec:v:9:y:2009:i:1:n:41
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    Cited by:

    1. Marcelo Olivares & Gabriel Y. Weintraub & Rafael Epstein & Daniel Yung, 2012. "Combinatorial Auctions for Procurement: An Empirical Study of the Chilean School Meals Auction," Management Science, INFORMS, vol. 58(8), pages 1458-1481, August.

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