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Competitive bidding with a bid floor
Author(s) -
Chen Bin R.,
Chiu Y. Stephen
Publication year - 2011
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2011.00169.x
Subject(s) - english auction , bidding , proxy bid , dutch auction , microeconomics , auction theory , revenue equivalence , reverse auction , economics , vickrey auction , eauction , multiunit auction , unique bid auction , procurement , generalized second price auction , common value auction , vickrey–clarke–groves auction , management
We study competitive bidding with an explicit bid floor, motivated by minimum wage legislation and minimum labor standards. We derive the equilibrium strategies in, and compare the expected procurement costs among, the first‐price, second‐price, English, and Dutch auctions in a private‐cost model. For the English auction, we also consider a variant in which each seller can terminate the auction by jumping down to sell at the price floor. We find that the first‐price auction and the aforementioned jump‐down English auction lead to a lower expected procurement cost than under the second‐price auction and the standard English auction.