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.
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We thank Werner Güth and Ulf Schiller for helpful comments and stimulating discussions. The paper greatly benefited from very helpful comments of the associate editor and two reviewers. We gratefully acknowledge comments from Jeannette Brosig, Veronika Grimm, Alfred Luhmer, Barbara Schöndube-Pirchegger, Gerhard Schwödiauer, and audiences at Erfurt, Frankfurt, Fribourg, Heidelberg, Leuven, Maastricht, Magdeburg, Marseille, Mannheim, Munich, and Swansea.
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Reiß, J.P., Schöndube, J.R. First-price equilibrium and revenue equivalence in a sequential procurement auction model. Econ Theory 43, 99–141 (2010). https://doi.org/10.1007/s00199-008-0428-7
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DOI: https://doi.org/10.1007/s00199-008-0428-7
Keywords
- Sequential first-price auctions
- Revenue equivalence
- Endogenous outside options
- Procurement auction
- Capacity constraints