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Probabilistic Procurement Auctions

  • Thomas Giebe
  • Paul Schweinzer

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 the 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.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4320.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4320
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  1. Hao Jia, 2008. "A stochastic derivation of the ratio form of contest success functions," Public Choice, Springer, vol. 135(3), pages 125-130, June.
  2. Francesco Decarolis, 2009. "When the Highest Bidder Loses the Auction: Theory and Evidence from Public Procurement," 2009 Meeting Papers 130, Society for Economic Dynamics.
  3. Todd Kaplan, 2001. "All-Pay Auctions with Variable Rewards," Discussion Papers 0109, Exeter University, Department of Economics.
  4. Christian Ewerhart, 2010. "Rent-seeking contests with independent private values," IEW - Working Papers 490, Institute for Empirical Research in Economics - University of Zurich.
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  7. Corchón, Luis C. & Dahm, Matthias, 2008. "Foundations for contest success functions," Working Papers 2072/9493, Universitat Rovira i Virgili, Department of Economics.
  8. Juan David Prada-Sarmiento, 2010. "Uncertainty in conflicts," DOCUMENTOS CEDE 007713, UNIVERSIDAD DE LOS ANDES-CEDE.
  9. Wärneryd, Karl, 2001. "Information in conflicts
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  10. Cédric Wasser, 2013. "Incomplete information in rent-seeking contests," Economic Theory, Springer, vol. 53(1), pages 239-268, May.
  11. Mark Fey, 2008. "Rent-seeking contests with incomplete information," Public Choice, Springer, vol. 135(3), pages 225-236, June.
  12. Luis C. Corchon, 2007. "The theory of contests : a survey," Economics Working Papers we075126, Universidad Carlos III, Departamento de Economía.
  13. Ryvkin, Dmitry, 2010. "Contests with private costs: Beyond two players," European Journal of Political Economy, Elsevier, vol. 26(4), pages 558-567, December.
  14. Leonid Polishchuk & Alexander Tonis, 2013. "Endogenous contest success functions: a mechanism design approach," Economic Theory, Springer, vol. 52(1), pages 271-297, January.
  15. Hurley, Terrance M. & Shogren, Jason F., 1998. "Asymmetric information contests," European Journal of Political Economy, Elsevier, vol. 14(4), pages 645-665, November.
  16. Makoto HANAZONO & Jun NAKABAYASHI & Masanori TSURUOKA, 2013. "Procurement Auctions with General Price-Quality Evaluation," KIER Working Papers 845, Kyoto University, Institute of Economic Research.
  17. Lambert Schoonbeek & Barbara Winkel, 2006. "Activity and inactivity in a rent-seeking contest with private information," Public Choice, Springer, vol. 127(1), pages 123-132, April.
  18. David A. Malueg & Andrew J. Yates, 2004. "Sent Seeking With Private Values," Public Choice, Springer, vol. 119(1_2), pages 161-178, 04.
  19. Maria Arbatskaya & Hugo Mialon, 2010. "Multi-activity contests," Economic Theory, Springer, vol. 43(1), pages 23-43, April.
  20. Qiang Fu & Jingfeng Lu, 2012. "Micro foundations of multi-prize lottery contests: a perspective of noisy performance ranking," Social Choice and Welfare, Springer, vol. 38(3), pages 497-517, March.
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