First-Price Procurement Auctions
نویسندگان
چکیده
We study markets in which an auctioneer wishes to assemble a team of agents to accomplish some task. These agents offer fixed services that incur some privately known cost. The auctioneer must select a team, or feasible set of agents, that is capable of performing the task. To this end, he designs a procurement auction in which he solicits bids from the agents and then selects some feasible set of agents (the winners) to perform the task at hand and pays them according to the rules of the auction. One possible mechanism for procurement auctions is the Vickrey-Clark-Groves (VCG) mechanism. However, a drawback of this mechanism is the potentially large overpayment: the payment of the auctioneer may greatly exceed the true cost of even the second-cheapest feasible set. We thus propose and analyze variants on first-price auctions, or auctions in which the team with the lowest bid is selected and pays their bid. These auctions are not truthful; instead, we motivate analyzing their properties in a strong -Nash equilibrium. We show that in general procurement settings, strong -Nash exist, and the feasible set of agents selected in any strong -Nash equilibrium is approximately efficient. For path and flow auctions, we bound the total payment to the winning agents by relating it to the true cost of routing one additional unit of demand (assuming all edges have unit capacity). Finally, we study the setting in which the demand of the auctioneer is not known, but rather the auctioneer and bidders share a common prior belief regarding the amount of demand. For this model, we design a first-price mechanism involving two-parameter bids and derive a bound on the payments of this mechanism similar to that of the known demand case.
منابع مشابه
On the analysis of asymmetric first price auctions
We provide new tools for studying asymmetric first price auctions, connecting their equilibria to the ρ-concavity of the underlying type distributions, and showing how one can use surplus expressions for symmetric auctions to bound equilibrium behavior in asymmetric auctions. We apply these tools to studying procurement auctions in which, as is common in practice, one seller is given an advanta...
متن کاملEntry and Subcontracting in Public Procurement Auctions
We empirically study how the interplay between entry and subcontracting choices is affected by the use of different auctions formats in public procurement. The differencein-differences strategy used exploits a dataset of auctions for public works run alternately under first price and average bid auctions. We find that the use of first price auctions causes a marked decline in both entry and sub...
متن کاملA Study of First-price Sealed-bid Procurement Auctions for Divisible Items∗
In this paper, we study first-price sealed-bid procurement auctions for divisible items. The auctions are divided into two cases: the auctioneer either does or does not compensate for an oversupply of the quantity purchased. The bidding behaviors of bidders are modeled, and then the optimal bidding strategy for bidders is obtained. It is shown that the bidder’s bidding price exists and is incre...
متن کاملProcurement Auctions with Pre-award Subcontracting
To be the lowest bidders in procurement auctions, contractors commonly solicit subcontract bids at the bid preparation stage. A remarkable feature of the subcontract competition is that “winning is not everything”; the lowest subcontractor gets a job conditional on his contractor’s successful bid. This paper makes the first attempt to establish a model for such pre-award subcontract competition...
متن کاملComparing Public Procurement Auctions
This paper contrasts two auction formats often used in public procurement: first price auctions with ex-post screening of bid responsiveness and average bid auctions, in which the bidder closest to the average bid wins. The equilibrium analysis reveals that their ranking is ambiguous in terms of revenues, but the average bid auction is typically less efficient. Using a dataset of Italian public...
متن کاملAwarding Price, Contract Performance and Bids Screening: Evidence from Procurement Auctions
This paper presents evidence on the perverse trade-off that first price auctions induce between low prices at the awarding stage and poor ex post performance when bids are not binding commitments. By exploiting the different timing with which first price auctions were introduced in Italy to procure public works, this study finds that at least half of the cost savings from lower winning prices a...
متن کامل