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Endogenous asymmetry in a dynamic procurement auction

Endogenous asymmetry in a dynamic procurement auction We show how to numerically solve for a Markov‐perfect equilibrium of a dynamic auction game where a procurer repeatedly purchases construction services from capacity‐constrained firms. We find that the procurer is best off scheduling frequent auctions for small project sizes. Otherwise, firm capacity utilization rates become larger and more asymmetric, which softens competition and increases procurement costs. We also find that forward‐looking bidding dampens the competition‐softening effects of asymmetry: farsighted firms compete more intensely than myopic ones. This can undermine the goal of a bid‐preference‐style affirmative action program: more farsighted firms respond less to the asymmetry induced via bid preferences. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Rand Journal of Economics Wiley

Endogenous asymmetry in a dynamic procurement auction

The Rand Journal of Economics , Volume 43 (4) – Dec 1, 2012

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References (70)

Publisher
Wiley
Copyright
Copyright © 2013, RAND.
ISSN
0741-6261
eISSN
1756-2171
DOI
10.1111/1756-2171.12006
Publisher site
See Article on Publisher Site

Abstract

We show how to numerically solve for a Markov‐perfect equilibrium of a dynamic auction game where a procurer repeatedly purchases construction services from capacity‐constrained firms. We find that the procurer is best off scheduling frequent auctions for small project sizes. Otherwise, firm capacity utilization rates become larger and more asymmetric, which softens competition and increases procurement costs. We also find that forward‐looking bidding dampens the competition‐softening effects of asymmetry: farsighted firms compete more intensely than myopic ones. This can undermine the goal of a bid‐preference‐style affirmative action program: more farsighted firms respond less to the asymmetry induced via bid preferences.

Journal

The Rand Journal of EconomicsWiley

Published: Dec 1, 2012

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