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On procurement auctions with fixed budgets

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  • Dastidar, Krishnendu Ghosh

Abstract

We consider an organisation which has been allotted a fixed budget 'A' by higher authorities, for procuring certain specified items. It seeks price quotations from firms. The firm quoting the lowest price secures the contract to sell the item to the organisation. In this context we compare first price and second price auctions and derive the following results. (i) The expected price in the first price auction is lower than the expected price in the second price auction. (ii) The expected quantity sold is the same across the two auctions. (iii) With a rise in the number of firms the expected price goes down and the expected quantity sold goes up in both FPA and SPA. (iv) The expected profit to any firm in equilibrium is also the same across the two auctions. (v) We analyse the effect of reserve prices and discuss optimal reserve price. (vi) We also discuss quantity auctions and show that they are equivalent to standard benchmark auctions.

Suggested Citation

  • Dastidar, Krishnendu Ghosh, 2008. "On procurement auctions with fixed budgets," Research in Economics, Elsevier, vol. 62(2), pages 72-91, June.
    • Handle: RePEc:eee:reecon:v:62:y:2008:i:2:p:72-91
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    References listed on IDEAS

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    1. Benny Moldovanu & Aner Sela, 2008. "The Optimal Allocation of Prizes in Contests," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 615-631, Springer.
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    3. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, November.
    4. Roberto Burguet, 2000. "Auction theory: a guided tour," Investigaciones Economicas, Fundación SEPI, vol. 24(1), pages 3-50, January.
    5. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1.
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    Cited by:

    1. Cary A. Deck & Bart J. Wilson, 2008. "Fixed Revenue Auctions: Theory And Behavior," Economic Inquiry, Western Economic Association International, vol. 46(3), pages 342-354, July.

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