Abstract
Within the common-value paradigm, I examine the magnitude of the differencein expected outcome between first-price and second-price, sealed-bid auctions.I limit myself to two empirical specifications of bidders' signals: Weibulland normal distribution. The optimal bid functions and the expected procurer'scost under both auction formats are derived. Simultions are undertaken toanalyze the impact that random draws of signals have on the differences inoutcome from the two auction formats. Using estimates from structuralestimation in previous empirical work on first-price auction data, whereWeibull and normal distributions of signals have been applied, thehypothetical expected gain from switching from a first-price, sealed-bidauction to a second-price, sealed-bid auction mechanism is computed.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Levin, D. and Smith, J.L. (1991). Some evidence on the winners's curse: Comment. American Economic Review, 81(1), 370–375.
Milgrom, P.R. (1981). Rational expectations, information acquisition, and competitive bidding. Econometrica, 49(4), 921–943.
Milgrom, P.R. and Weber, R.J. (1982). A theory of auctions and competitive bidding. Econometrica, 50(5), 1089–1122.
Paarsch, H.J. (1992). Deciding between the common and private value paradigms in empirical models of auctions. Journal of Econometrics, 51, 191–215.
Rothkopf, M.H. (1969). A model of rational competitive bidding. Management Science, 15(7), 362–373.
Rothkopf, M.H., Tiesberg, T.J. and Kahn, E.P. (1990). Why are Vickrey auctions rare. Journal of Political Economy, 98, 95–109.
Smiley, A.K. (1979). Competitive Bidding under Uncertainty: The Case of Offshore Oil. Ballinger, Cambridge.
Thiel, S.E. (1988). Some evidence on the winner's curse. American Economic Review, 78(5), 884–895.
Wilson, R. (1977). A bidding model of perfect competition. Review of Economic Studies, 44, 511–518.
Wilson, R. (1992). Strategic analyis of auctions. In R.J. Aumann and S. Hart (eds.), Handbook of Game Theory, Volume 1. North-Holland.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Lunander, A. Procurement Bidding in First-Price and Second-Price, Sealed-Bid Auctions within the Common-Value Paradigm. Computational Economics 19, 227–244 (2002). https://doi.org/10.1023/A:1015008130780
Issue Date:
DOI: https://doi.org/10.1023/A:1015008130780