The Contractors' Game

Kevin Lang and Robert Rosenthal

RAND Journal of Economics, 1991, vol. 22, issue 3, 329-338

Abstract: We develop a symmetric-information auction model of multiproject contracting with costly bidding and increasing marginal performance costs. When there are many potential contractors or only one job, there is a zero-expected-profit symmetric equilibrium in mixed strategies. The winning bid at this equilibrium tends to rise (perversely) with the number of contractors. When there are only two potential bidders and either two or three jobs, multiple bids of a contractor at equilibrium are negatively correlated with each other. The resulting equilibrium outcome tends to divide the market between the contractors in a manner that suggests anticompetitive behavior despite the absence of any collusion.

Date: 1991
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