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Probabilistic procurement auctions

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  • Thomas Giebe

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  • Paul Schweinzer

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Abstract

We analyse procurement auctions in which sellers are distinguished on the basis of the ratios of quality per unit of money that they offer. Sellers are privately informed on the offered quality of the technology or good. We assume that the procurer cannot perfectly identify the best offer. Thus, with positive and decreasing probability, the second, third, etc. best ratio offered is selected as the winner of the auction. We model this decision process as based on a general noisy ranking of offers. We show that, although the problem seems to be analytically intractable in general, there exists a simple symmetric, pure-strategy equilibrium in which everyone follows the simple heuristic to match the same ‘focal’ price–quality ratio. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Thomas Giebe & Paul Schweinzer, 2015. "Probabilistic procurement auctions," Review of Economic Design, Springer;Society for Economic Design, vol. 19(1), pages 25-46, March.
  • Handle: RePEc:spr:reecde:v:19:y:2015:i:1:p:25-46
    DOI: 10.1007/s10058-014-0161-6
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Giebe, Thomas, 2014. "Innovation contests with entry auction," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 165-176.
    2. Gian Luigi Albano & Berardino Cesi & Alberto Iozzi, 2017. "Teaching an old dog a new trick: reserve price and unverifiable quality in repeated procurement," CEIS Research Paper 404, Tor Vergata University, CEIS, revised 05 May 2017.
    3. Albano, Gian Luigi & Cesi, Berardino & Iozzi, Alberto, 2017. "Public procurement with unverifiable quality: The case for discriminatory competitive procedures," Journal of Public Economics, Elsevier, vol. 145(C), pages 14-26.
    4. Diwakar Gupta & Mili Mehrotra, 2015. "Bundled Payments For Healthcare Services: Proposer Selection and Information Sharing," Operations Research, INFORMS, vol. 63(4), pages 772-788, August.

    More about this item

    Keywords

    Auctions; Contests; Price–quality ratio; Procurement; Scoring; C7; D7; H57;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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