Procurement Auctions and Unit-Price Contracts

Christian Ewerhart and Karsten Fieseler ()
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Karsten Fieseler: Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim

No 02-11, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: In competitive procurement auctions, bids often have the form of unit-price contracts (UPCs). We show that optimal bidding behavior in UPC auctions is typically non-monotonic, and therefore may lead to inefficient allocations. However, UPC auctions may still be desirable for the buyer when compared to efficient mechanisms such as the first-price auction. This is because in a UPC auction, low types are subsidized, and the resulting stronger competition reduces the winning bidder's informational rent, which overcompensates the efficiency loss.

Pages: 27 pages
Date: 2002-02-17
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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Journal Article: Procurement Auctions and Unit-Price Contracts (2003)
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