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Strategic design under uncertain evaluations: structural analysis of design‐build auctions
Author(s) -
Takahashi Hidenori
Publication year - 2018
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12246
Subject(s) - common value auction , bidding , context (archaeology) , microeconomics , competition (biology) , ranking (information retrieval) , economics , identification (biology) , quality (philosophy) , computer science , industrial organization , paleontology , ecology , philosophy , botany , epistemology , machine learning , biology
I investigate firms' competition over price and product design under uncertain design evaluations in the context of Design‐Build (DB) auctions. Reviewers' design evaluations contain uncertainty from a bidder's perspective, leading luck to dampen differences in the firms' chances of winning. I model bidders' behavior and show semiparametric identification of the model primitives. Uncertain design evaluations increase the expected price of design quality and exacerbate an auctioneer's uncertainty in auction outcomes. These effects are mostly due to changes in bidding strategies. Bid ranking swaps due to uncertain evaluations account for a small share of these effects.