Abstract
We analyze a simple multi-attribute procurement auction that uses yardstick competition to settle prices. Upon receiving the submitted bids, a mediator computes the yardstick prices (bids) by a linear weighting of the other participants’ bids. The auction simplifies the procurement process by reducing the principal’s articulation of his preferences to simply choosing the most preferred oer as if it was a market with posted prices.
Although truthful reporting does not constitute a Nash equilibrium, we demonstrate by simulations that truth-telling may indeed be some kind of focal point. By focusing on the initial winner in case everyone tells the truth, we show that even if the other bidders are allowed to misreport by as much as 20% of their true cost, the initial winner remains the winner in 80% of all simulated auctions in the case of 3 competing bidders. Furthermore, as it takes aggressive bidding to become the new winner of the auction, we show that the new winners typically win with a loss. Combining the two results we have that, almost independently of the number of competing bidders and the degree of misreporting, approximately 90%of all simulations will either have the same initial winner or a new winner who wins the auction with a loss in its utility.
Although truthful reporting does not constitute a Nash equilibrium, we demonstrate by simulations that truth-telling may indeed be some kind of focal point. By focusing on the initial winner in case everyone tells the truth, we show that even if the other bidders are allowed to misreport by as much as 20% of their true cost, the initial winner remains the winner in 80% of all simulated auctions in the case of 3 competing bidders. Furthermore, as it takes aggressive bidding to become the new winner of the auction, we show that the new winners typically win with a loss. Combining the two results we have that, almost independently of the number of competing bidders and the degree of misreporting, approximately 90%of all simulations will either have the same initial winner or a new winner who wins the auction with a loss in its utility.
| Original language | English |
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| Publisher | Institute of Food and Resource Economics, University of Copenhagen |
| Number of pages | 15 |
| Publication status | Published - 2013 |
| Series | MSAP Working Paper Series |
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| Number | 02/2013 |