TY - JOUR
T1 - A sealed-bid two-attribute yardstick auction without prior scoring
AU - Hougaard, Jens Leth
AU - Nielsen, Kurt
AU - Papakonstantinou, Athanasios
PY - 2016/7/1
Y1 - 2016/7/1
N2 - We analyze a two-attribute single item procurement auction that uses yardstick competition to settle prices. The auction simplifies the procurement process by reducing the principal’s articulation of preferences to simply choosing the most preferred offer as if it was a market with posted prices. This is done simply by replacing the submitted sealed bids by yardstick bids, computed by a linear weighting of the other participants’ bids. We show that there is only one type of Nash equilibria where some agents may win the auction by submitting a zero price-bid. Using a simulation study we demonstrate that following this type of equilibrium behavior often leads to winner’s curse. The simulations show that in auctions with more than 12 participants the chance of facing winner’s curse is around 95 %. Truthful reporting, on the other hand, does not constitute a Nash equilibrium but it is ex post individually rational. Using a simulation study we demonstrate that truthful bidding may indeed represent some kind of focal point.
AB - We analyze a two-attribute single item procurement auction that uses yardstick competition to settle prices. The auction simplifies the procurement process by reducing the principal’s articulation of preferences to simply choosing the most preferred offer as if it was a market with posted prices. This is done simply by replacing the submitted sealed bids by yardstick bids, computed by a linear weighting of the other participants’ bids. We show that there is only one type of Nash equilibria where some agents may win the auction by submitting a zero price-bid. Using a simulation study we demonstrate that following this type of equilibrium behavior often leads to winner’s curse. The simulations show that in auctions with more than 12 participants the chance of facing winner’s curse is around 95 %. Truthful reporting, on the other hand, does not constitute a Nash equilibrium but it is ex post individually rational. Using a simulation study we demonstrate that truthful bidding may indeed represent some kind of focal point.
U2 - 10.1007/s10726-015-9463-5
DO - 10.1007/s10726-015-9463-5
M3 - Journal article
SN - 0926-2644
VL - 25
SP - 827
EP - 843
JO - Group Decision and Negotiation
JF - Group Decision and Negotiation
IS - 4
ER -