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Procurement with competing insiders

Author

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  • Robertson, Matthew J.

Abstract

The tournament auction is a novel approach to studying procurement in which a group of entrants compete for the chance to face a strong incumbent, or insider. I introduce competing insiders and risk aversion to this form of procurement auction and analyse how these factors affect optimal bidding behaviour. Increasing the number of strong insiders significantly decreases the degree of above-value bidding that is present with a single insider. In contrast, risk aversion increases above-value bidding relative to risk neutrality, but has a weaker effect than the number of insiders on bidding behaviour. Therefore, even with risk-averse bidders, bids eventually approach bidders’ values when the number of insiders grows large.

Suggested Citation

  • Robertson, Matthew J., 2025. "Procurement with competing insiders," Economics Letters, Elsevier, vol. 250(C).
    • Handle: RePEc:eee:ecolet:v:250:y:2025:i:c:s0165176525001260
    DOI: 10.1016/j.econlet.2025.112289
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    More about this item

    Keywords

    Strong insiders; Tournament auction; Overbidding; Expected revenue; Procurement;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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