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The Impact of Capacity Costs on Bidding Strategies in Procurement Auctions

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  • Jörg Budde

    (University of Magdeburg)

  • Robert F. Göx

    (University of Magdeburg)

Abstract

This paper analyzes the impact of capacity costs on bidding strategies of firms participating in procurement auctions. More efficient firms will invest in advance due to their high probability of winning the auction while less efficient bidders prefer to wait with their investments until the outcome of the auction is known. However, in equilibrium both types of firms include a coverage for their investment costs in their bids and therefore adopt a full cost pricing policy.

Suggested Citation

  • Jörg Budde & Robert F. Göx, 2000. "The Impact of Capacity Costs on Bidding Strategies in Procurement Auctions," Review of Accounting Studies, Springer, vol. 4(1), pages 5-13, January.
    • Handle: RePEc:spr:reaccs:v:4:y:2000:i:1:d:10.1023_a:1009620820703
    DOI: 10.1023/A:1009620820703
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    References listed on IDEAS

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    3. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    4. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
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