Procurement Auctions with General Price-Quality Evaluation

Makoto Hanazono, Jun Nakabayashi and Masanori Tsuruoka (ma6trok@yahoo.co.jp)
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Masanori Tsuruoka: Department of Economics, University of Tokyo

No 845, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We offer a general framework to study procurement auctions when quality matters. In this environment, sellers compete for a project by bidding a price-quality pair, and the winning bidder is determined by the score assigned to each bid. In contrast to the existing study in which only the quasilinear scoring rule is considered, our analysis allows a broad class of scoring rules including many other realistic ones. We focus on the analyses of the equilibrium bidding behavior of first-score (FS) and second-score (SS) auctions. We find that FS or SS auctions can be transformed into equivalent, single-dimensional score-bid auctions where the bidder's utility (payoff upon winning) is non-linear in the score-bid. Our analysis demonstrates that the ranking of the two auction formats, in terms of expected scores, depends on the scoring rule and that the equivalence fails unless scoring rules are quasilinear. FS auctions induce less aggressive bidding than SS auctions if, for example, the scoring rule is price-quality ratio (PQR).

Keywords: scoring auctions; non-quasilinear scoring rules; procurement (search for similar items in EconPapers)
JEL-codes: D44 H57 L13 (search for similar items in EconPapers)
Pages: 24pages
Date: 2013-01
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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