A Sealed-Bid Two-Attribute Yardstick AuctionWithout Prior Scoring

Jens Leth Hougaard, Kurt Nielsen, Athanasios Papakonstantinou

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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 languageEnglish
JournalGroup Decision and Negotiation
Volume25
Issue number4
Pages (from-to)827-843
ISSN0926-2644
DOIs
Publication statusPublished - 2016

Keywords

  • Multi-attribute auctions
  • Yardstick competition
  • Articulation of preferences

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