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A Multi-attribute Yardstick Auction without Prior Scoring

Author

Listed:
  • Jens Leth Hougaard

    (Department of Food and Resource Economics, University of Copenhagen)

  • Kurt Nielsen

    (Department of Food and Resource Economics, University of Copenhagen)

  • Athanasios Papakonstantinou

    (Department of Food and Resource Economics, University of Copenhagen)

Abstract

We analyze a two-attribute procurement auction that uses yardstick competition to settle prices. The submitted sealed bids are replaced by yardstick bids, computed by a linear weighting of the other participants’ bids. The auction simplifies the procurement process by reducing the principal’s articulation of preferences to simply choosing the most preferred offer as if it was a market with posted prices. We show that there is only one type of Nash equilibria where some agents may win the auction by submitting a zero price bid. Using a simulation study we demonstrate that following this type of equilibrium behavior often leads to winner’s curse. The simulations show that in auctions with more than 12 participants the chance of facing winner’s curse is around 95%. Truthful reporting, on the other hand, does not constitute a Nash equilibrium but it is ex post individually rational. Using a simulation study we demonstrate that truthful bidding may indeed represent some kind of focal point.

Suggested Citation

  • Jens Leth Hougaard & Kurt Nielsen & Athanasios Papakonstantinou, 2013. "A Multi-attribute Yardstick Auction without Prior Scoring," MSAP Working Paper Series 02_2013, University of Copenhagen, Department of Food and Resource Economics, revised Mar 2014.
    • Handle: RePEc:foi:msapwp:02_2013
    as

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    File URL: http://okonomi.foi.dk/workingpapers/MSAPpdf/MSAP2013/MSAP_WP02_2013_revised.pdf
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    References listed on IDEAS

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    Cited by:

    1. Yigal Gerchak, 2016. "Procurement (Reverse) Auctions Where Service Providers have Official Ratings," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-10, December.

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    Keywords

    Multi-attribute auction; yardstick competition; articulation of preferences; simulation;
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