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On procurement auctions with fixed budgets

  • Dastidar, Krishnendu Ghosh

We consider an organisation which has been allotted a fixed budget 'A' by higher authorities, for procuring certain specified items. It seeks price quotations from firms. The firm quoting the lowest price secures the contract to sell the item to the organisation. In this context we compare first price and second price auctions and derive the following results. (i) The expected price in the first price auction is lower than the expected price in the second price auction. (ii) The expected quantity sold is the same across the two auctions. (iii) With a rise in the number of firms the expected price goes down and the expected quantity sold goes up in both FPA and SPA. (iv) The expected profit to any firm in equilibrium is also the same across the two auctions. (v) We analyse the effect of reserve prices and discuss optimal reserve price. (vi) We also discuss quantity auctions and show that they are equivalent to standard benchmark auctions.

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Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 62 (2008)
Issue (Month): 2 (June)
Pages: 72-91

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Handle: RePEc:eee:reecon:v:62:y:2008:i:2:p:72-91
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622941

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  1. Che, Yeon-Koo & Gale, Ian, 1998. "Standard Auctions with Financially Constrained Bidders," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 1-21, January.
  2. Moldovanu, Benny & Sela, Aner, 2002. "Contest Architecture," Sonderforschungsbereich 504 Publications 02-06, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  3. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, vol. 91(3), pages 542-558, June.
  4. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Series Working Papers 2004-W09, University of Oxford, Department of Economics.
  5. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, March.
  6. Kaplan, Todd, et al, 2002. "All-Pay Auctions with Variable Rewards," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 417-30, December.
  7. Burguet, R., 1998. "Auction Theory: a Guided Tour," UFAE and IAE Working Papers 422.98, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  8. repec:cup:cbooks:9780521536721 is not listed on IDEAS
  9. Spulber, Daniel F, 1995. "Bertrand Competition When Rivals' Costs Are Unknown," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 1-11, March.
  10. Robert G. Hansen, 1988. "Auctions with Endogenous Quantity," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 44-58, Spring.
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  12. Yvan Lengwiler, 1998. "The multiple unit auction with variable supply," Finance and Economics Discussion Series 1998-28, Board of Governors of the Federal Reserve System (U.S.).
  13. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice
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    ," Introductory Chapters, Princeton University Press.
  14. Milgrom, Paul, 1989. "Auctions and Bidding: A Primer," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 3-22, Summer.
  15. Back, Kerry & Zender, Jaime F., 2001. "Auctions of divisible goods with endogenous supply," Economics Letters, Elsevier, vol. 73(1), pages 29-34, October.
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