Auctions With A Minimum Requirement Of Bids

Ferdinando Colombo

Australian Economic Papers, 2003, vol. 42, issue 4, 363-372

Abstract: 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.

Date: 2003
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