Investment incentives in procurement auctions

By Leandro Arozamena, Estelle Cantillon. 2001

126 citations recorded by the source corpus.

We investigate firms' incentives for cost reduction in the first price sealed bid auction, a format largely used for procurement. A central feature of the model is that we allow firms to be heterogeneous. Though private value first price auctions are not games with monotonic best responses, we find that for comparative statistic purposes they behave like these games. In particular, firms will tend to underinvest in cost reduction because they anticipate fiercer head-on competition. Using the second price auction as a benchmark, we also find that the first price auction will elicit less investment from market participants. Moreover, both auction formats tend to favour investment by the current market leader and are therefore likely to reinforce asymmetries among market participants.

Subfields: Management Information Systems, Management Science and Operations Research, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/cb34dd42166c514314f5f0af0b1e47da03ebebbd

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Management Information Systems

1. Enrique Seira
2. Jonathan D. Levin
3. Ichiro Obara
4. Susan Athey

In Management Science and Operations Research

1. Susan Athey
2. Jonathan D. Levin
3. Enrique Seira
4. Ichiro Obara
5. David McAdams
6. Stefan Wager
7. Guido W. Imbens
8. Philip J. Reny

In Strategy and Management

1. Jonathan D. Levin
2. Ichiro Obara
3. Susan Athey
4. Yuliy Sannikov
5. Sylvain Chassang
6. M. Warner

Citations in the corpus

• Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions (2004, background): “See also Arozamena and Cantillon (2004) for an analysis of ex ante investment by heterogeneous bidders.”
• Online advertising and privacy (2014, unknown): “Other papers following a related approach include Bergemann and Välimäki (2002), Arozamena and Cantillon (2004) and Piccione and Tan (1996), although the choice of the designer in these papers concerns the format of the auction (e.”
• The Full Surplus Extraction Theorem with Hidden Actions (2006, background): “(6)See Arozamena and Cantillon [3], Tan [40], and Piccione and Tan [37].”