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Communication of preferences in contests for contracts

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  • Todd Kaplan

Abstract

This paper models a contest where several sellers compete for a contract with a single buyer. There are several styles of possible designs with a subset of them preferred by the buyer. We examine what happens when the buyer communicates information about his preferences. If the sellers are unable to change their style, then there is no effect on the welfare of the sellers. If the sellers are able to make adjustments, extra information may either boost or damage the sellers’ profits. While the chance that there will be a proposal of a style preferred by the buyer cannot decrease, the buyer’s surplus may increase or decrease. Copyright Springer-Verlag 2012

Suggested Citation

  • Todd Kaplan, 2012. "Communication of preferences in contests for contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 487-503, October.
    • Handle: RePEc:spr:joecth:v:51:y:2012:i:2:p:487-503
    DOI: 10.1007/s00199-010-0525-2
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    References listed on IDEAS

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    1. Kaplan, Todd R. & Luski, Israel & Wettstein, David, 2003. "Innovative activity and sunk cost," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1111-1133, October.
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    8. Bergemann, Dirk & Pesendorfer, Martin, 2007. "Information structures in optimal auctions," Journal of Economic Theory, Elsevier, vol. 137(1), pages 580-609, November.
    9. Péter Eső & Balázs Szentes, 2007. "Optimal Information Disclosure in Auctions and the Handicap Auction," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(3), pages 705-731.
    10. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
    11. Michael R. Baye & Dan Kovenock & Casper G. Vries, 1996. "The all-pay auction with complete information," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 209-223, Springer.
    12. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    13. Todd R. Kaplan & David Wettstein, 2006. "Caps on Political Lobbying: Comment," American Economic Review, American Economic Association, vol. 96(4), pages 1351-1354, September.
    14. Amann, Erwin & Leininger, Wolfgang, 1996. "Asymmetric All-Pay Auctions with Incomplete Information: The Two-Player Case," Games and Economic Behavior, Elsevier, vol. 14(1), pages 1-18, May.
    15. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
    16. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May.
    17. Todd Kaplan, 2006. "Why banks should keep secrets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(2), pages 341-357, January.
    18. Cremer, Jacques & Khalil, Fahad, 1992. "Gathering Information before Signing a Contract," American Economic Review, American Economic Association, vol. 82(3), pages 566-578, June.
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    Cited by:

    1. Fischer, Sven & Guth, Werner & Kaplan, Todd & Zultan, Roi, 2014. "Auctions and Leaks: A Theoretical and Experimental Investigation," MPRA Paper 58940, University Library of Munich, Germany.
    2. Nicola Doni & Domenico Menicucci, 2014. "Information Revelation in Procurement Auctions with Two‐Sided Asymmetric Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(4), pages 952-968, December.
    3. Igor Letina & Armin Schmutzler, 2019. "Inducing Variety: A Theory Of Innovation Contests," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(4), pages 1757-1780, November.
    4. Todd R. Kaplan & David Wettstein, 2022. "Two-stage contests with preferences over style," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(4), pages 1141-1161, November.
    5. Chen, Zhuoqiong, 2025. "Know thy enemy: Information acquisition in contests," European Economic Review, Elsevier, vol. 177(C).
    6. Schmutzler, Armin & Letina, Igor, 2015. "Designing Innovation Contests for Diversity," CEPR Discussion Papers 10736, Centre for Economic Policy Research.
    7. Kai Konrad & Dan Kovenock, 2012. "Introduction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 241-245, October.
    8. Sven Fischer & Werner Güth & Todd R. Kaplan & Ro'i Zultan, 2021. "Auctions With Leaks About Early Bids: Analysis And Experimental Behavior," Economic Inquiry, Western Economic Association International, vol. 59(2), pages 722-739, April.
    9. Chen, Zhuoqiong, 2021. "Optimal information exchange in contests," Journal of Mathematical Economics, Elsevier, vol. 96(C).
    10. Helmuts Āzacis & Péter Vida, 2015. "Collusive communication schemes in a first-price auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(1), pages 125-160, January.
    11. Fischer, Sven & Guth, Werner & Kaplan, Todd & Zultan, Roi, 2014. "Auctions and Leaks: A Theoretical and Experimental Investigation," MPRA Paper 58940, University Library of Munich, Germany.
    12. Zhuoqiong Chen, 2021. "All-pay auctions with private signals about opponents’ values," Review of Economic Design, Springer;Society for Economic Design, vol. 25(1), pages 33-64, June.

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    Keywords

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    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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