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Fuzzy Price-Quality Ratio Procurement under Incomplete Information

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  • Thomas Giebe
  • Paul Schweinzer

Abstract

We analyse a procurement auction in which sellers are distinguished on the basis of the ratios of quality per unit of money they offer. Sellers are privately informed on the quality of the technology or good they offer. 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, provided that the procurer’s ranking technology employs the right degree of noisiness.

Suggested Citation

  • Thomas Giebe & Paul Schweinzer, 2012. "Fuzzy Price-Quality Ratio Procurement under Incomplete Information," Discussion Papers 12/26, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:12/26
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    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.

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    More about this item

    Keywords

    Auctions; Contests; Procurement;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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