Economic Theory

, Volume 43, Issue 1, pp 99–141

First-price equilibrium and revenue equivalence in a sequential procurement auction model

Open AccessResearch Article

DOI: 10.1007/s00199-008-0428-7

Cite this article as:
Reiß, J.P. & Schöndube, J.R. Econ Theory (2010) 43: 99. doi:10.1007/s00199-008-0428-7

Abstract

We analyze first-price equilibrium bidding behavior of capacity-constrained firms in a sequence of two procurement auctions. In the model, firms with a cost advantage in completing the project auctioned off at the end of the sequence may enter the unfavored first auction hoping to lose it. Equilibrium bidding in both auctions deviates from the standard Symmetric Independent Private Value auction model due to opportunity costs of bidding created by possibly employed capacity. For this sequential auction model with non-identical objects, we show that revenue equivalence applies.

Keywords

Sequential first-price auctions Revenue equivalence Endogenous outside options Procurement auction Capacity constraints 

JEL Classification

C72 D44 L51 
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Copyright information

© The Author(s) 2008

Authors and Affiliations

  1. 1.Economics DepartmentMaastricht UniversityMaastrichtThe Netherlands
  2. 2.Faculty of Economics and ManagementUniversity of MagdeburgMagdeburgGermany