Optimal Use of Rewards as Commitment Device When Bidding Is Costly

Hu Luke ()
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Hu Luke: Humboldt University of Berlin, Institute of Economic Theory I, Berlin, Germany

The B.E. Journal of Theoretical Economics, 2013, vol. 13, issue 1, 179-189

Abstract: This paper considers procurement auctions with costly bidding when the auctioneer is unable to commit himself to restrict the number of bidders. The auctioneer can, however, publicly pledge to pay a financial reward to every contractor he has invited to bid, as an indirect commitment device. Rewards for short-listed bidders are costly. Nevertheless, it is generally optimal for the procurer to credibly implement the same restriction of the number of bidders that is optimal under full commitment.

Keywords: procurement; auctions; industrial organization; mechanism design (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1515/bejte-2012-0015

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