 Incentive and sampling effects in procurement auctions with endogenous number of biddersYoungwoo Koh International Journal of Industrial Organization, 2017, vol. 52, issue C, 393-426 Abstract: We study an auction contest for a procurement of innovation. Firms exert effort and the resulting quality of innovation is ex ante uncertain. Given this uncertainty, there is a trade-off regarding the number of participating firms in the contest: increasing the number of firms reduces each firm’s chance of winning the auction, leading the firms to reduce effort level; meanwhile, the chance of obtaining a high quality of innovation increases with the number of firms due to the randomness of the quality. Thus, the procurer faces a nontrivial problem of how many firms to invite. We show that in the high level of randomness, it is optimal for the procurer to invite many firms. As the randomness vanishes, however, inviting only two firms is optimal. We also show that a fixed-prize tournament may outperform the auction when the randomness is large. Keywords: Procurement; Contest; Auction; Innovation; Quality (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:52:y:2017:i:c:p:393-426 DOI: 10.1016/j.ijindorg.2017.02.006 Access Statistics for this article International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal More articles in International Journal of Industrial Organization from Elsevier |
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