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Procurement Auctions with General Price-Quality Evaluation

  • Makoto HANAZONO

    ()

    (School of Economics, Nagoya University)

  • Jun NAKABAYASHI

    ()

    (Institute of Social and Economic Research, Osaka University)

  • Masanori TSURUOKA

    ()

    (Department of Economics, University of Tokyo)

We offer a general framework to study procurement auctions when quality matters. In this environment, sellers compete for a project by bidding a price-quality pair, and the winning bidder is determined by the score assigned to each bid. In contrast to the existing study in which only the quasilinear scoring rule is considered, our analysis allows a broad class of scoring rules including many other realistic ones. We focus on the analyses of the equilibrium bidding behavior of first-score (FS) and second-score (SS) auctions. We find that FS or SS auctions can be transformed into equivalent, single-dimensional score-bid auctions where the bidder's utility (payoff upon winning) is non-linear in the score-bid. Our analysis demonstrates that the ranking of the two auction formats, in terms of expected scores, depends on the scoring rule and that the equivalence fails unless scoring rules are quasilinear. FS auctions induce less aggressive bidding than SS auctions if, for example, the scoring rule is price-quality ratio (PQR).

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File URL: http://www.kier.kyoto-u.ac.jp/DP/DP845.pdf
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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 845.

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Length: 24pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:kyo:wpaper:845
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  1. Nakabayashi, Jun, 2013. "Small business set-asides in procurement auctions: An empirical analysis," Journal of Public Economics, Elsevier, vol. 100(C), pages 28-44.
  2. Fernando Branco, 1997. "The Design of Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 63-81, Spring.
  3. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
  4. Robert G. Hansen, 1988. "Auctions with Endogenous Quantity," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 44-58, Spring.
  5. Bergman, Mats & Lundberg, Sofia, 2011. "Tender Evaluation and Award Methodologies in Public Procurement," Umeå Economic Studies 821, Umeå University, Department of Economics.
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