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.
In this paper we theoretically analyse effects of corruption in public procurements within a scoring-auction framework. A corrupt politician, who acts on behalf of the public sector, receives a kickback from the winning bidder. The politician selects the scoring rule. The paper shows that such corruption always leads to lower quality and lower price. Given a level of corruption, a higher bargaining power of the politician in extracting bribes does not affect the quality but leads to higher price. [Copyright Elsevier B.V.]
ABSTRACTAn increasingly studied auction format is the asymmetric procurement auction, which features an advantaged bidder selling a good or service to a buyer. Such asymmetric setups, although generally believed to be more realistic, are also more complex. We investigate one such setting where one bidder has a cost advantage. Our central question is whether bidders who are cost disadvantaged can overcome their inferior cost position. In a design that mirrors real construction procurement auctions, our laboratory experiment tests whether two information asymmetries (more precise cost estimates and knowledge about the cost estimating abilities of a competitor) allow cost‐disadvantaged sellers to better compete. We begin by testing bidder performance in a procurement auction where the only asymmetry is due to a cost. In this setting, analytical benchmarks are known. We find—consistent with other studies—that all bidder types submit aggressive bids well below the Nash equilibrium predictions. Over time, subjects submit less aggressive bids, moving closer to what theory would predict. We then extend our experiments to include our novel, multiple asymmetry setup. We find that endowing cost‐disadvantaged bidders with higher cost estimate precision benefits the bidder, as one might expect. Notably, providing market knowledge about a rival's ability to estimate costs may not provide a benefit; in fact, it seems bidders are not able to use this information effectively and performance suffers. Finally, we show how bidders behave myopically when making these decisions. These implications raise important questions about how asymmetries interact in complex auction settings.
We consider two mechanisms to procure differentiated goods: a sealed-bid buyer-determined auction and a dynamic-bid price-based auction with bidding credits. The sealed-bid buyer-determined auction is analogous to the "request for quote" procedure commonly used by procurement agencies, and has each seller submit a price and the inherent quality of his good. Then the buyer selects the seller who offers the greatest difference in quality and price. In the dynamic-bid price-based auction with bidding credits, the buyer assigns a bidding credit to each seller conditional upon the quality of the seller's good. Then the sellers compete in an English auction, with the winner receiving the auction price and his bidding credit. Game-theoretic models predict the sealed-bid buyer-determined auction is socially efficient but the dynamic-bid price-based auction with bidding credits is not. The optimal bidding credit assignment undercompensates for quality advantages, creating a market distortion in which the buyer captures surplus at the expense of the seller's profit and social efficiency. In our experiment, the sealed-bid buyer-determined auction is less efficient than the dynamic-bid price-based auction with bidding credits. Moreover, both the buyer and seller receive more surplus in the dynamic-bid price-based auction with bidding credits.
