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Identification in Auction Models with Interdependent Costs

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  • Paulo Somaini

Abstract

This paper provides a nonparametric identification result for procurement models with asymmetric bidders, dependent private information, and interdependent costs. For risk-neutral bidders, the model’s payoff-relevant primitives are the joint distribution of private information and each bidder’s full-information expected cost. The joint distribution of bids identifies the joint distribution of signals. First-order conditions identify the expected cost conditional on tying with at least one competitor for the lowest bid. I show identification of each bidder’s full-information cost, using variation in competitors’ cost shifters that are excludable from bidders’ own full-information costs, and generate variation in the set of competitors’ signals that induce a tie for the lowest bid. I estimate the relevant payoff primitives using data from Michigan highway procurements and evaluate policies that affect the winner’s curse’s severity.

Suggested Citation

  • Paulo Somaini, 2020. "Identification in Auction Models with Interdependent Costs," Journal of Political Economy, University of Chicago Press, vol. 128(10), pages 3820-3871.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/709970
    DOI: 10.1086/709970
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    Cited by:

    1. Carnehl, Christoph & Weiergraeber, Stefan, 2023. "Bidder asymmetries in procurement auctions: Efficiency vs. information – Evidence from railway passenger services," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    2. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2022. "Counterfactuals with Latent Information," American Economic Review, American Economic Association, vol. 112(1), pages 343-368, January.
    3. Kevin Leyton-Brown & Paul Milgrom & Neil Newman & Ilya Segal, 2023. "Artificial Intelligence and Market Design: Lessons Learned from Radio Spectrum Reallocation," NBER Chapters, in: New Directions in Market Design, National Bureau of Economic Research, Inc.
    4. Lu, Jiaxuan, 2023. "The economics of China’s between-city height competition: A regression discontinuity approach," Regional Science and Urban Economics, Elsevier, vol. 100(C).
    5. Bougt, Daniel & Ghosh, Gagan & Liu, Heng, 2023. "Identification of interdependent values in sequential first-price auctions," International Journal of Industrial Organization, Elsevier, vol. 91(C).

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