Premium
Auctions With A Minimum Requirement Of Bids
Author(s) -
Colombo Ferdinando
Publication year - 2003
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.00204
Subject(s) - bidding , commit , microeconomics , proxy bid , production (economics) , procurement , unique bid auction , business , common value auction , bid shading , economics , english auction , industrial organization , auction theory , computer science , marketing , database
We show that in a procurement auction with independent and private costs of production and a positive cost of preparing a bid, the requirement of a minimum number of offers for the good to be bought always yields a unique (perfect) Bayesian equilibrium where no firm enters a bid, whatever its cost of production, the number of potential bidders and the size of the bidding cost. To avoid the no‐bid result, the buyer can commit to subsidise the losing bidders in certain circumstances. Alternatively, it can use a stochastic auction, where the provider of the good is not always the firm that bids the lowest price.