Abstract
We analyze a two-attribute single item procurement auction that uses yardstick
competition to settle prices. 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. This is done simply by replacing
the submitted sealed bids by yardstick bids, computed by a linear weighting of the
other participants’ bids.We show that there is only one type of Nash equilibria where
some agents may win the auction by submitting a zero price-bid. Using a simulation
study we demonstrate that following this type of equilibrium behavior often leads to
winner’s curse. The simulations show that in auctions with more than 12 participants
the chance of facing winner’s curse is around 95%. Truthful reporting, on the other
hand, does not constitute a Nash equilibrium but it is ex post individually rational.
Using a simulation study we demonstrate that truthful bidding may indeed represent
some kind of focal point.
Original language | English |
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Journal | Group Decision and Negotiation |
Volume | 25 |
Issue number | 4 |
Pages (from-to) | 827-843 |
ISSN | 0926-2644 |
DOIs | |
Publication status | Published - 2016 |
Keywords
- Multi-attribute auctions
- Yardstick competition
- Articulation of preferences