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Optimal Procurement Mechanisms for an Informed Buyer

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  • Guofu Tan

Abstract

This paper studies a buyer (e.g., a government agency) offering a procurement contract to a number of privately informed suppliers. The buyer has private information about her demand for the product to be procured. The optimal mechanisms for all types of the buyer are examined. It is optimal for the buyer to reveal her demand information through the contract offer and use a first-price sealed-bid auction procedure to award the contract, announcing her reserve price in advance. Any second-price auction is shown to yield less expected surplus for the buyer than the optimal first-price auction does when the buyer's marginal willingness to pay decreases with quantity.

Suggested Citation

  • Guofu Tan, 1996. "Optimal Procurement Mechanisms for an Informed Buyer," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 699-716, August.
    • Handle: RePEc:cje:issued:v:29:y:1996:i:3:p:699-716
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    Citations

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    Cited by:

    1. Mylovanov, Tymofiy & Tröger, Thomas, 2008. "Optimal Auction Design and Irrelevance of Private Information," Bonn Econ Discussion Papers 21/2008, University of Bonn, Bonn Graduate School of Economics (BGSE).
    2. Koessler, Frédéric & Skreta, Vasiliki, 2016. "Informed seller with taste heterogeneity," Journal of Economic Theory, Elsevier, vol. 165(C), pages 456-471.
    3. Thomas Troeger & Tymofiy Mylovanov, 2010. "Optimal Auction Design and Irrelevance of Privacy of Information," 2010 Meeting Papers 1039, Society for Economic Dynamics.
    4. Koessler, Frederic & Skreta, Vasiliki, 2019. "Selling with evidence," Theoretical Economics, Econometric Society, vol. 14(2), May.
    5. Anastasios Dosis, 2022. "On the informed principal model with common values," RAND Journal of Economics, RAND Corporation, vol. 53(4), pages 792-825, December.
    6. Jason Shachat & J. Todd Swarthout, 2010. "Procurement Auctions for Differentiated Goods," Decision Analysis, INFORMS, vol. 7(1), pages 6-22, March.
    7. repec:wyi:journl:002123 is not listed on IDEAS
    8. Dimitris Kostamis & Damian R. Beil & Izak Duenyas, 2009. "Total-Cost Procurement Auctions: Impact of Suppliers' Cost Adjustments on Auction Format Choice," Management Science, INFORMS, vol. 55(12), pages 1985-1999, December.
    9. Zhang, Heng & Yang, Ming & Bao, Jiye & Gong, Pu, 2013. "Competitive investing equilibrium under a procurement mechanism," Economic Modelling, Elsevier, vol. 31(C), pages 734-738.
    10. Wagner, Christoph & Mylovanov, Tymofiy & Tröger, Thomas, 2015. "Informed-principal problem with moral hazard, risk neutrality, and no limited liability," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 280-289.
    11. Takeshi Nishimura, 2012. "Scoring Auction by an Informed Principal," Global COE Hi-Stat Discussion Paper Series gd11-224, Institute of Economic Research, Hitotsubashi University.
    12. Mylovanov, Timofiy & Troger, Thomas E., 2012. "Informed principal problems in generalized private values environments," Theoretical Economics, Econometric Society, vol. 7(3), September.
    13. Francesco Giovannoni & Toomas Hinnosaar, 2022. "Pricing Novel Goods," Papers 2208.04985, arXiv.org, revised Aug 2024.
    14. Gillen, Philippe, 2019. "Commitment in first-price auctions," ZEW Discussion Papers 19-062, ZEW - Leibniz Centre for European Economic Research.
    15. repec:kap:iaecre:v:11:y:2005:i:3:p:329-342 is not listed on IDEAS
    16. Sofia Lundberg, 2005. "Restrictions on Competition in Municipal Competitive Procurement in Sweden," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 11(3), pages 329-342, August.

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