IDEAS home Printed from https://ideas.repec.org/a/spr/grdene/v25y2016i4d10.1007_s10726-015-9463-5.html
   My bibliography  Save this article

A Sealed-Bid Two-Attribute Yardstick Auction Without Prior Scoring

Author

Listed:
  • Jens Leth Hougaard

    (University of Copenhagen)

  • Kurt Nielsen

    () (University of Copenhagen)

  • Athanasios Papakonstantinou

    (Technical University of Denmark)

Abstract

Abstract We analyze a two-attribute single item procurement auction that uses yardstick competition to settle prices. The auction simplifies the procurement process by reducing the principal’s articulation of preferences to simply choosing the most preferred offer as if it was a market with posted prices. This is done simply by replacing the submitted sealed bids by yardstick bids, computed by a linear weighting of the other participants’ bids. We show that there is only one type of Nash equilibria where some agents may win the auction by submitting a zero price-bid. Using a simulation study we demonstrate that following this type of equilibrium behavior often leads to winner’s curse. The simulations show that in auctions with more than 12 participants the chance of facing winner’s curse is around 95 %. Truthful reporting, on the other hand, does not constitute a Nash equilibrium but it is ex post individually rational. Using a simulation study we demonstrate that truthful bidding may indeed represent some kind of focal point.

Suggested Citation

  • Jens Leth Hougaard & Kurt Nielsen & Athanasios Papakonstantinou, 2016. "A Sealed-Bid Two-Attribute Yardstick Auction Without Prior Scoring," Group Decision and Negotiation, Springer, vol. 25(4), pages 827-843, July.
  • Handle: RePEc:spr:grdene:v:25:y:2016:i:4:d:10.1007_s10726-015-9463-5
    DOI: 10.1007/s10726-015-9463-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10726-015-9463-5
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bushnell, James B & Oren, Shmuel S, 1994. "Bidder Cost Revelation in Electric Power Auctions," Journal of Regulatory Economics, Springer, vol. 6(1), pages 5-26, February.
    2. Juan Aparicio & Mercedes Landete & Juan Monge & Inmaculada Sirvent, 2008. "A new pricing scheme based on DEA for iterative multi-unit combinatorial auctions," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 16(2), pages 319-344, December.
    3. PER AGRELL & Peter Bogetoft & Jørgen Tind, 2005. "DEA and Dynamic Yardstick Competition in Scandinavian Electricity Distribution," Journal of Productivity Analysis, Springer, vol. 23(2), pages 173-201, May.
    4. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
    5. Cripps, Martin & Ireland, Norman, 1994. "The Design of Auctions and Tenders with Quality Thresholds: The Symmetric Case," Economic Journal, Royal Economic Society, vol. 104(423), pages 316-326, March.
    6. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-392, June.
    7. David C. Parkes & Jayant Kalagnanam, 2005. "Models for Iterative Multiattribute Procurement Auctions," Management Science, INFORMS, vol. 51(3), pages 435-451, March.
    8. Teich, Jeffrey E. & Wallenius, Hannele & Wallenius, Jyrki & Koppius, Otto R., 2004. "Emerging multiple issue e-auctions," European Journal of Operational Research, Elsevier, vol. 159(1), pages 1-16, November.
    9. Moulin,Hervi, 1991. "Axioms of Cooperative Decision Making," Cambridge Books, Cambridge University Press, number 9780521424585, January.
    10. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
    11. David Zilberman, 1996. "The Economics of a Public Fund for Environmental Amenities: A Study of CRP Contracts," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 961-971.
    12. Damian R. Beil & Lawrence M. Wein, 2003. "An Inverse-Optimization-Based Auction Mechanism to Support a Multiattribute RFQ Process," Management Science, INFORMS, vol. 49(11), pages 1529-1545, November.
    13. Bogetoft, Peter & Nielsen, Kurt, 2008. "DEA based auctions," European Journal of Operational Research, Elsevier, vol. 184(2), pages 685-700, January.
    14. Babcock, Bruce A. & Lakshminarayan, P. G. & Wu, J. & Zilberman, David, 1997. "Targeting Tools for the Purchase of Environmental Amenities," Staff General Research Papers Archive 5220, Iowa State University, Department of Economics.
    15. Chao, Hung-Po & Wilson, Robert, 2002. "Multi-dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules," Journal of Regulatory Economics, Springer, vol. 22(2), pages 161-183, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yigal Gerchak, 2016. "Procurement (Reverse) Auctions Where Service Providers have Official Ratings," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-10, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:grdene:v:25:y:2016:i:4:d:10.1007_s10726-015-9463-5. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.