Procurement Bidding in First-Price and Second-Price, Sealed-Bid Auctions within the Common-Value Paradigm

Anders Lunander

Computational Economics, 2002, vol. 19, issue 2, 227-44

Abstract: Within the common-value paradigm, I examine the magnitude of the difference in expected outcome between first-price and second-price, sealed-bid auctions. I limit myself to two empirical specifications of bidders' signals: Weibull and normal distribution. The optimal bid functions and the expected procurer's cost under both auction formats are derived. Simultions are undertaken to analyze the impact that random draws of signals have on the differences in outcome from the two auction formats. Using estimates from structural estimation in previous empirical work on first-price auction data, where Weibull and normal distributions of signals have been applied, the hypothetical expected gain from switching from a first-price, sealed-bid auction to a second-price, sealed-bid auction mechanism is computed. Copyright 2002 by Kluwer Academic Publishers

Date: 2002
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