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Procuring price and quality using scoring auctions: where do we stand?

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Abstract

This study assesses the rapidly growing literature on scoring rule auctions (SRA), in which all participants submit a multidimensional bid comprising prices and levels of one or more qualities. These elements are weighted using a linear combination, that is, the scoring function. The result of this function is a score and the bid that obtains the highest score is awarded the contract. We provide a comprehensive overview of key theoretical and empirical results. In addition, we discuss structural estimation techniques applied to SRA and we conclude with three main limitations of this awarding mechanism.

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Notes

  1. However, often an “innovation component” is present in the scoring function, although it is not the only quality component.

  2. The new code of procurement was put into effect on April 18, 2016.

  3. We define (\(v_{QQ}-c_{QQ}\)) as the Hessian matrix of \(v-c\) for Q.

  4. Since the present study is a literature review, for all proofs, we refer to the original papers.

  5. Theorem 1 and Corollary 1 in Asker and Cantillon (2008). We refer to their paper for proofs.

  6. In a beauty contest, a buyer does not reveal his/her preference for quality, but bidders are required to submit a single \(\left( Q,p\right)\) contract they are willing to fulfill.

  7. In a menu auction, the buyer does not reveal his/her preference for quality, but bidders are required to submit a range of possible \(\left( Q,p\right)\) contracts they are willing to fulfill.

  8. Adapted from Che (1993), Proposition 4.

  9. Che (1993), pp. 675

  10. Adopted from Asker and Cantillon’s (2010, Theorem 1).

  11. See Nakabaiashi and Hirose (2016, pp. 7–10).

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  1. University of Padova, Padua, Italy

    Riccardo Camboni Marchi Adani

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Camboni Marchi Adani, R. Procuring price and quality using scoring auctions: where do we stand?. Econ Polit Ind 45, 17–36 (2018). https://doi.org/10.1007/s40812-017-0088-3

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