IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_4320.html
   My bibliography  Save this paper

Probabilistic Procurement Auctions

Author

Listed:
  • Thomas Giebe
  • Paul Schweinzer

Abstract

We analyse procurement auctions in which sellers are distinguished on the basis of the ratios of quality per unit of money that they offer. Sellers are privately informed on the offered quality of the technology or good. We assume that the procurer cannot perfectly identify the best offer. Thus, with positive and decreasing probability, the second, third, etc. best ratio offered is selected as the winner of the auction. We model the decision process as based on a general noisy ranking of offers. We show that, although the problem seems to be analytically intractable in general, there exists a simple symmetric, pure-strategy equilibrium in which everyone follows the simple heuristic to match the same ‘focal’ price-quality ratio.

Suggested Citation

  • Thomas Giebe & Paul Schweinzer, 2013. "Probabilistic Procurement Auctions," CESifo Working Paper Series 4320, CESifo.
    • Handle: RePEc:ces:ceswps:_4320
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp4320.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. repec:bla:jindec:v:50:y:2002:i:4:p:417-30 is not listed on IDEAS
    2. Francesco Decarolis, 2009. "When the highest bidder loses the auction: theory and evidence from public procurement," Temi di discussione (Economic working papers) 717, Bank of Italy, Economic Research and International Relations Area.
    3. Maria Arbatskaya & Hugo Mialon, 2010. "Multi-activity contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(1), pages 23-43, April.
    4. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
    5. Gong, Jiong & Li, Jianpei & McAfee, R. Preston, 2012. "Split-award contracts with investment," Journal of Public Economics, Elsevier, vol. 96(1), pages 188-197.
    6. Todd Kaplan & Israel Luski & Aner Sela & David Wettstein, 2002. "All–Pay Auctions with Variable Rewards," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 417-430, December.
    7. David A. Malueg & Andrew J. Yates, 2004. "Sent Seeking With Private Values," Public Choice, Springer, vol. 119(1_2), pages 161-178, April.
    8. John Asker & Estelle Cantillon, 2008. "Properties of scoring auctions," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 69-85, March.
    9. Wasser, Cédric, 2013. "A note on Bayesian Nash equilibria in imperfectly discriminating contests," Mathematical Social Sciences, Elsevier, vol. 66(2), pages 180-182.
    10. Leonid Polishchuk & Alexander Tonis, 2013. "Endogenous contest success functions: a mechanism design approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 271-297, January.
    11. Luis Corchón & Matthias Dahm, 2010. "Foundations for contest success functions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(1), pages 81-98, April.
    12. David Dranove & Mark A. Satterthwaite, 1992. "Monopolistic Competition When Price and Quality are Imperfectly Observable," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 518-534, Winter.
    13. repec:cte:werepe:we075126 is not listed on IDEAS
    14. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-290.
    15. Makoto HANAZONO & Jun NAKABAYASHI & Masanori TSURUOKA, 2013. "Procurement Auctions with General Price-Quality Evaluation," KIER Working Papers 845, Kyoto University, Institute of Economic Research.
    16. Yeon-Koo Che & Ian Gale, 2003. "Optimal Design of Research Contests," American Economic Review, American Economic Association, vol. 93(3), pages 646-671, June.
    17. Cohn, Elchanan, 2000. "Education at a Glance--OECD Indicators 1998 Edition;: Organisation for Economic Co-Operation and Development, Paris, 1998, 432 pages, soft cover, $49.00 (FF 295; DM 88)," Economics of Education Review, Elsevier, vol. 19(4), pages 460-461, October.
    18. Hao Jia, 2008. "A stochastic derivation of the ratio form of contest success functions," Public Choice, Springer, vol. 135(3), pages 125-130, June.
    19. Warneryd, Karl, 2003. "Information in conflicts," Journal of Economic Theory, Elsevier, vol. 110(1), pages 121-136, May.
    20. Qiang Fu & Jingfeng Lu, 2012. "Micro foundations of multi-prize lottery contests: a perspective of noisy performance ranking," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 38(3), pages 497-517, March.
    21. Mark Fey, 2008. "Rent-seeking contests with incomplete information," Public Choice, Springer, vol. 135(3), pages 225-236, June.
    22. Christian Ewerhart, 2010. "Rent-seeking contests with independent private values," IEW - Working Papers 490, Institute for Empirical Research in Economics - University of Zurich.
    23. Cédric Wasser, 2013. "Incomplete information in rent-seeking contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(1), pages 239-268, May.
    24. Alex Gershkov & Jianpei Li & Paul Schweinzer, 2009. "Efficient tournaments within teams," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 103-119, March.
    25. Hurley, Terrance M. & Shogren, Jason F., 1998. "Effort levels in a Cournot Nash contest with asymmetric information," Journal of Public Economics, Elsevier, vol. 69(2), pages 195-210, June.
    26. Luis Corchón, 2007. "The theory of contests: a survey," Review of Economic Design, Springer;Society for Economic Design, vol. 11(2), pages 69-100, September.
    27. Garfinkel, Michelle R. & Skaperdas, Stergios, 2007. "Economics of Conflict: An Overview," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 2, chapter 22, pages 649-709, Elsevier.
    28. Lambert Schoonbeek & Barbara Winkel, 2006. "Activity and inactivity in a rent-seeking contest with private information," Public Choice, Springer, vol. 127(1), pages 123-132, April.
    29. repec:cte:werepe:we070401 is not listed on IDEAS
    30. Ryvkin, Dmitry, 2010. "Contests with private costs: Beyond two players," European Journal of Political Economy, Elsevier, vol. 26(4), pages 558-567, December.
    31. Juan David Prada-Sarmiento, 2010. "Uncertainty in conflicts," Documentos CEDE 7713, Universidad de los Andes, Facultad de Economía, CEDE.
    32. Hurley, Terrance M. & Shogren, Jason F., 1998. "Asymmetric information contests," European Journal of Political Economy, Elsevier, vol. 14(4), pages 645-665, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Giebe, Thomas, 2014. "Innovation contests with entry auction," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 165-176.
    2. Gian Luigi Albano & Berardino Cesi & Alberto Iozzi, 2023. "Teaching an old dog a new trick: Reserve price and unverifiable quality in repeated procurement," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(2), pages 377-399, April.
    3. Albano, Gian Luigi & Cesi, Berardino & Iozzi, Alberto, 2017. "Public procurement with unverifiable quality: The case for discriminatory competitive procedures," Journal of Public Economics, Elsevier, vol. 145(C), pages 14-26.
    4. Spencer Bastani & Thomas Giebe & Oliver Gürtler, 2019. "A General Framework for Studying Contests," CESifo Working Paper Series 7993, CESifo.
    5. Diwakar Gupta & Mili Mehrotra, 2015. "Bundled Payments For Healthcare Services: Proposer Selection and Information Sharing," Operations Research, INFORMS, vol. 63(4), pages 772-788, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giebe, Thomas, 2014. "Innovation contests with entry auction," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 165-176.
    2. Heijnen, Pim & Schoonbeek, Lambert, 2019. "Rent-seeking with uncertain discriminatory power," European Journal of Political Economy, Elsevier, vol. 56(C), pages 103-114.
    3. Gallice, Andrea, 2017. "An approximate solution to rent-seeking contests with private information," European Journal of Operational Research, Elsevier, vol. 256(2), pages 673-684.
    4. Fu, Qiang & Wu, Zenan & Zhu, Yuxuan, 2022. "On equilibrium existence in generalized multi-prize nested lottery contests," Journal of Economic Theory, Elsevier, vol. 200(C).
    5. Mercier, Jean-François, 2018. "Non-deterministic group contest with private information," Mathematical Social Sciences, Elsevier, vol. 95(C), pages 47-53.
    6. Philip Brookins & Dmitry Ryvkin, 2014. "An experimental study of bidding in contests of incomplete information," Experimental Economics, Springer;Economic Science Association, vol. 17(2), pages 245-261, June.
    7. Wasser, Cédric, 2013. "A note on Bayesian Nash equilibria in imperfectly discriminating contests," Mathematical Social Sciences, Elsevier, vol. 66(2), pages 180-182.
    8. Christian Ewerhart & Julia Lareida, 2018. "Voluntary disclosure in asymmetric contests," ECON - Working Papers 279, Department of Economics - University of Zurich, revised Jul 2023.
    9. Einy, E. & Haimanko, O. & Moreno, D. & Sela, A. & Shitovitz, B., 2015. "Equilibrium existence in Tullock contests with incomplete information," Journal of Mathematical Economics, Elsevier, vol. 61(C), pages 241-245.
    10. Lambert Schoonbeek, 2017. "Information And Endogenous Delegation In A Rent-Seeking Contest," Economic Inquiry, Western Economic Association International, vol. 55(3), pages 1497-1510, July.
    11. Christian Ewerhart & Federico Quartieri, 2020. "Unique equilibrium in contests with incomplete information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(1), pages 243-271, July.
    12. Yangguang Huang & Ming He, 2021. "Structural Analysis Of Tullock Contests With An Application To U.S. House Of Representatives Elections," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(3), pages 1011-1054, August.
    13. Kai A. Konrad & Florian Morath, 2020. "Escalation in conflict games: on beliefs and selection," Experimental Economics, Springer;Economic Science Association, vol. 23(3), pages 750-787, September.
    14. Rob Everhardt & Lambert Schoonbeek, 2015. "Rent-seeking group contests with one-sided private information," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 38(1), pages 55-73, April.
    15. Ryvkin, Dmitry, 2010. "Contests with private costs: Beyond two players," European Journal of Political Economy, Elsevier, vol. 26(4), pages 558-567, December.
    16. Ori Haimanko, 2021. "Bayesian Nash equilibrium existence in (almost continuous) contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(3), pages 1231-1258, April.
    17. Sakshi Gupta & Ram Singh, 2018. "On Existence and Properties of Pure-strategy Equilibria under Contests," Working Papers id:12840, eSocialSciences.
    18. Kai A. Konrad & Florian Morath, 2017. "Escalation in Dynamic Conflict: On Beliefs and Selection," Working Papers tax-mpg-rps-2017-05, Max Planck Institute for Tax Law and Public Finance.
    19. Cédric Wasser, 2013. "Incomplete information in rent-seeking contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(1), pages 239-268, May.
    20. Grossmann, Martin, 2014. "Uncertain contest success function," European Journal of Political Economy, Elsevier, vol. 33(C), pages 134-148.

    More about this item

    Keywords

    auctions; contests; price-quality ratio; procurement; scoring;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_4320. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.