IDEAS home Printed from https://ideas.repec.org/p/foi/msapwp/02_2012.html
   My bibliography  Save this paper

A Simple Multi-attribute Yardstick Auction Without Prior Scoring

Author

Listed:
  • Jens Leth Hougaard

    () (Institute of Food and Resource Economics, University of Copenhagen)

  • Kurt Nielsen

    () (Institute of Food and Resource Economics, University of Copenhagen)

  • Athanasios Papakonstantinou

    (Department of Economics, Copenhagen Business School)

Abstract

We analyze a simple multi-attribute procurement auction that uses yardstick competition to settle prices. Upon receiving the submitted bids the auctioneer computes the yardstick prices (bids) by a linear weighting of the other participants’ bids. 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. The auction is not incentive compatible. For some bidders, it may be optimal to bid strategically and manipulate the outcome of the auction. By simulations we show that these opportunities are limited. It is only a small fraction of all bidders that may gain by deviating from submitting true cost bids and this fraction is decreasing as the number of bidders increases. Furthermore, for those that may gain from deviating from telling the truth, the mechanism counteracts strategic bidding in both thin and thick markets. In thin markets deviation have to be large and therefore more risky, in thick markets only small deviations are optimal. The yardstick auction is not efficient nor optimal relative to a situation where the principal articulates his preferences a priori and uses the efficient second score auction. However, the auction approximates efficiency and the cost of not investing sufficient time and money in articulating a scoring function a priori, is also diminishing as the number of bidders increases. Compared with the efficient second score auction, our numerical results suggest that the yardstick auction generates approximately 1% less social values and 2% less private value with 10 or more bidders.

Suggested Citation

  • Jens Leth Hougaard & Kurt Nielsen & Athanasios Papakonstantinou, 2012. "A Simple Multi-attribute Yardstick Auction Without Prior Scoring," MSAP Working Paper Series 02_2012, University of Copenhagen, Department of Food and Resource Economics.
  • Handle: RePEc:foi:msapwp:02_2012
    as

    Download full text from publisher

    File URL: http://okonomi.foi.dk/workingpapers/MSAPpdf/MSAP2012/MSAP_WP02_2012.pdf
    Download Restriction: no

    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. 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.
    4. Peter Bogetoft & Kurt Nielsen, 2002. "DEA Based Yardstick Competition in Natural Resource Management," CIE Discussion Papers 2002-04, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    5. Moulin,Hervi, 1991. "Axioms of Cooperative Decision Making," Cambridge Books, Cambridge University Press, number 9780521424585, January.
    6. Bogetoft, Peter & Nielsen, Kurt, 2008. "DEA based auctions," European Journal of Operational Research, Elsevier, vol. 184(2), pages 685-700, January.
    7. 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.
    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. Babcock, Bruce A. & Lakshminarayan, P. G. & Wu, JunJie & Zilberman, David, 1996. "Economics of a Public Fund for Environmental Amenities (The)," Staff General Research Papers Archive 1065, Iowa State University, Department of Economics.
    10. 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)

    More about this item

    Keywords

    Multi-attribute auction; yardstick competition; articulation of preferences; simulation;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:foi:msapwp:02_2012. 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: (Geir Tveit). General contact details of provider: http://edirc.repec.org/data/msakudk.html .

    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.