Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162634
Authors: 
Balanquit, RM
Kimwell, MJM
Year of Publication: 
2016
Series/Report no.: 
Discussion Paper, School of Economics, University of the Philippines 2016-09
Abstract: 
Procurement auctions that assume independent private values (IPV) provide a benchmark for analysis that is readily demonstrated but often unrealistic. Firms who compete for exclusive selling rights normally derive outputs from a highly similar set of inputs which, in turn, allows them to obtain some knowledge on how others would price their goods. In this paper, we incorporate this assumption by showing how affiliated signals and interdependent values can possibly affect the expected quantities sold and selling prices of some endogenous-quantity procurement auction formats. The resulting equilibrium bidding strategies no longer give credence to the typical equivalence result which holds under IPV. In this environment, the second-price auction yields both higher expected prices and lower expected quantities than the first-price auction. This result is consistent with similar studies showing suboptimality of auction mechanisms that allow for winning bids of less-than-the-highest willingness to pay, when values are not fully independent.
Subjects: 
procurement auctions
affiliated signals
interdependent values
first price vs. second price
JEL: 
D44
H57
Document Type: 
Working Paper

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