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A Multi-attribute Yardstick Auction without Prior Scoring

Jens Hougaard (), Kurt Nielsen () and Athanasios Papakonstantinou
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Kurt Nielsen: Department of Food and Resource Economics, University of Copenhagen

No 02_2013, MSAP Working Paper Series from University of Copenhagen, Department of Food and Resource Economics

Abstract: We analyze a two-attribute procurement auction that uses yardstick competition to settle prices. The submitted sealed bids are replaced by yardstick bids, computed by a linear weighting of the other participants’ bids. The auction simplifies the procurement process by reducing the principal’s articulation of preferences to simply choosing the most preferred offer as if it was a market with posted prices. We show that there is only one type of Nash equilibria where some agents may win the auction by submitting a zero price bid. Using a simulation study we demonstrate that following this type of equilibrium behavior often leads to winner’s curse. The simulations show that in auctions with more than 12 participants the chance of facing winner’s curse is around 95%. Truthful reporting, on the other hand, does not constitute a Nash equilibrium but it is ex post individually rational. Using a simulation study we demonstrate that truthful bidding may indeed represent some kind of focal point.

Keywords: Multi-attribute auction; yardstick competition; articulation of preferences; simulation (search for similar items in EconPapers)
Pages: 16 pages
Date: 2013-05, Revised 2014-03
New Economics Papers: this item is included in nep-cmp, nep-com, nep-cta, nep-exp, nep-gth, nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:foi:msapwp:02_2013

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