What is the key element of the analysis?

As Fudenberg and Tirole (1984) and Bulow, Geanakoplos and Klemperer (1985) have shown, it then turns out that the nature of strategic interactions in the second-stage game (i.e. whether best responses are increasing or decreasing) is a key element of the analysis.

What is the main difference between the two auctions?

These results suggest that in markets where investment prior to the auction is deemed important or where there exist positive synergies between auctions, the second price auction is likely to be better at fostering a healthy level of competition.

Why is the symmetric equilibrium of the simultaneous investment game not observable?

Because of the negative strategic e¤ect identi…ed in propositions 1 and 2, investing more than x¤ would not be pro…table either if investment is observable.

What is the proof of a socially optimal investment?

The proof straightforwardly extends to N > 2: With one quali…cation, it also easily extends to situations where …rms invest simultaneously: when investment is simultaneous, the socially optimal outcome is always an equilibrium but not necessarily the only one.

What is the incentive of rm 1 to deviate from the symmetric Nash?

suppose that the symmetric Nash equilibrium of the investment game is given by (x¤; :::; x¤) (where x represents …rms’ investment level, indexed according to de…nition 1) and consider …rm 1’s incentive to deviate.

What does the symmetric equilibrium of the simultaneous investment game suggest?

In other words, their results suggest that the focus on the symmetric equilibrium of the simultaneous investment game can only be justi…ed if investment is not observable.

Open AccessJournal Article10.2139/SSRN.264535

Investment Incentives in Procurement Auctions

Q: What are the future works mentioned in the paper "Investment incentives in procurement auctions¤" ?

In any case, further research is needed. In the meantime, economists will need to rely on numerical methods for gaining understanding of the basic forces at play in asymmetric …rst price auctions ( and they have already successfully done so: see Marshall et al., 1994, Athey, 1997, and Li and Riley, 1999 ). of course on the economic environment under study.

Leandro Arozamena, +3 more

- 01 Aug 2000

- Social Science Research Network

TL;DR: In this paper, the authors investigate firms' incentives for cost reduction in the first price sealed bid auction, a format largely used for procurement, and they find that firms will tend to underinvest in cost reduction because they anticpate fiercer ehad-on competition.

Abstract: We investigate firms' incentives for cost reduction in the first price sealed bid auction, a format largely used for procurement. A central feature of the model is that we allow firms to be heterogeneous. Though private value first price auctions are not games with monotonic best responses, we find that for comparative statics purposes they behave like these games. In particular, firms will tend to underinvest in cost reduction because they anticpate fiercer ehad-on competition. Using the second price auction as a benchmark, we also find that the first price auction will elicit less investment from market participants. Moreover, both auction formats tend to favor investment by the current market leader and are therefore likely to reinforce asymmetries among market participants.

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Most frequently asked questions

1. What are the contributions in "Investment incentives in procurement auctions¤" ?

The authors investigate... rms ’ incentives for cost reduction in the... rst price sealed bid auction, a format largely used for procurement.

2. What are the future works mentioned in the paper "Investment incentives in procurement auctions¤" ?

In any case, further research is needed.. In the meantime, economists will need to rely on numerical methods for gaining understanding of the basic forces at play in asymmetric …rst price auctions ( and they have already successfully done so: see Marshall et al., 1994, Athey, 1997, and Li and Riley, 1999 ). of course on the economic environment under study.

3. What is the value function of a dynamic version of the model?

15Repeated procurement auctions are also an active area for empirical research (see amongothers, the work of Bajari (1998 and 1999) and Jofre-Bonet and Pesendorfer (1999)).hold for the value function of a dynamic version of the model.

4. Why do firms tend to invest less when the FPA format is used?

Firms will tend to invest less when the FPA format is used because they anticipate the more aggressive behavior of their opponents.

Citations

•Journal Article•10.1111/0034-6527.00273

Investment Incentives in Procurement Auctions

Leandro Arozamena, +1 more

- 01 Jan 2004

- The Review of Economic Studies

TL;DR: In this article, the authors investigate firms' incentives to invest in cost reduction in the first price sealed bid auction, a format largely used for procurement, and find that firms will tend to underinvest in costs reduction because they anticipate fiercer head-on competition.

...read moreread less

112

•Journal Article•10.2139/SSRN.2464054

Towards a More Competitive PPP Procurement Market: A Game-Theoretical Analysis

Dennis De Clerck, +1 more

- 01 Jan 2014

- Social Science Research Network

TL;DR: In this paper, a game-theoretical analysis of the bidding framework in a public-private partnership (PPP) setting is presented, where a contractor's strategy is composed of the pre-tender investment willingness and the targeted mark-up.

...read moreread less

•Journal Article•10.2139/SSRN.2529009

An Ex Ante Bidding Model to Assess the Incentive Creation Capability of a Public-Private Partnership Pipeline

Dennis De Clerck, +1 more

- 01 Nov 2014

- Social Science Research Network

TL;DR: In this paper, a theoretical model and a simulation experiment that mimics the tendering process with heterogeneity in the bidders' cost structure are presented to evaluate the impact of a project pipeline on the ex ante bid preparation effort willingness and the targeted mark-ups.

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•Posted Content

Franchise Bidding in the Water Industry- Auction Schemes and Investment Incentives

Urs Meister

- 20 Dec 2004

- Research Papers in Economics

TL;DR: In this paper, a simple auction model that considers the specifics of the piped water sector was used to show that investment incentives may vary depending on the applied auction scheme and that investment tends to be higher in sealed bid auctions than in an English auction.

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Efektywność odwrotnych mechanizmów aukcyjnych i quasi-aukcyjnych

Paweł Kuśmierczyk

- 01 Jan 2013

References

Journal Article•10.1287/MOOR.6.1.58

Optimal Auction Design

Roger B. Myerson

- 01 Feb 1981

- Mathematics of Operations Research

TL;DR: Optimal auctions are derived for a wide class of auction design problems when the seller has imperfect information about how much the buyers might be willing to pay for the object.

...read moreread less

Journal Article•10.1086/261312

Multimarket Oligopoly: Strategic Substitutes and Complements

Jeremy Bulow, +2 more

- 01 Jun 1985

- Journal of Political Economy

TL;DR: A firm's actions in one market can change competitors' strategies in a second market by affecting its own marginal costs in that other market as mentioned in this paper, and whether the action provides costs or benefits in the second market depends on whether it increases or decreases marginal costs.

...read moreread less

2.8K

•Book Chapter•10.1007/3-540-29578-X_11

Log-concave probability and its applications

Mark Bagnoli, +1 more

- 01 Jan 2005

- Economic Theory

TL;DR: In this article, a series of theorems relating log-concavity and/or logconvexity of probability density functions, distribution functions, reliability functions, and their integrals are presented.

...read moreread less

1.4K

•Journal Article•10.2307/2938239

Aggregation and imperfect competition: on the existence of equilibrium

Andrew Caplin, +1 more

- 01 Jan 1991

- Econometrica

TL;DR: In this paper, the authors present an approach to the theory of imperfect competition and apply it to study price competition among differentiated products, including products with multi-dimen-sional attributes.

...read moreread less

809

Journal Article•10.1111/1467-937X.00138

Equilibrium in Sealed High Bid Auctions

Eric Maskin, +1 more

- 01 Jul 2000

- The Review of Economic Studies

TL;DR: In this article, the existence of monotonic equilibrium in sealed high-bid auctions is shown to hold for all bidders in a symmetric equilibrium, in which all buyers share the same bidding behaviour as a function of their valuations.

...read moreread less

569

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Investment Incentives in Procurement Auctions

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Most frequently asked questions

1. What are the contributions in "Investment incentives in procurement auctions¤" ?

2. What are the future works mentioned in the paper "Investment incentives in procurement auctions¤" ?

3. What is the value function of a dynamic version of the model?

4. Why do firms tend to invest less when the FPA format is used?

5. What is the key element of the analysis?

6. What is the main difference between the two auctions?

7. Why is the symmetric equilibrium of the simultaneous investment game not observable?

8. What is the proof of a socially optimal investment?

9. What is the incentive of rm 1 to deviate from the symmetric Nash?

10. What does the symmetric equilibrium of the simultaneous investment game suggest?

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Citations

Investment Incentives in Procurement Auctions

Towards a More Competitive PPP Procurement Market: A Game-Theoretical Analysis

An Ex Ante Bidding Model to Assess the Incentive Creation Capability of a Public-Private Partnership Pipeline

Franchise Bidding in the Water Industry- Auction Schemes and Investment Incentives

Efektywność odwrotnych mechanizmów aukcyjnych i quasi-aukcyjnych

References

Optimal Auction Design

Multimarket Oligopoly: Strategic Substitutes and Complements

Log-concave probability and its applications

Aggregation and imperfect competition: on the existence of equilibrium

Equilibrium in Sealed High Bid Auctions

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