Levelling the Field through Scoring Auctions

Eirik N. Christensen
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Eirik N. Christensen: University of Bergen, Department of Economics, Postal: Herman Fossgt. 6, N-5007 Bergen, Norway

No 10/08, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: This paper considers how price auctions compare with two-dimensional bidding on price and quality, when bidders have comparative advantages. Two-dimensional bids are evaluated by a scoring rule decided by the auctioneer and three auction types are evaluated: a) a scoring auction reflecting the auctioneer's true preferences; b) a scoring auction with 'optimal' distortion of quality in the scoring rule; and c) a price-only auction with optimal quality threshold. The main findings are: 1) while the auctioneer always prefers the scoring auction, bidders may favour the price auction to the scoring auction and vice versa, depending on underlying conditions of the type space and cost parameters; and 2) the auctioneer can exploit firms' comparative advantages to level the field. An optimal scoring auction can, in some circumstances, extract all rent from bidders, leaving the auctioneer with all the e¢ ciency gain from the bidding process. There even exists a knife-edge situation where the auctioneer can extract all rent when using his true preferences as the scoring rule.

Keywords: scoring auctions; private values; comparative advantages. (search for similar items in EconPapers)
JEL-codes: D44 H57 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2008-08-04
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