Procurement Auctions with Advised Bidders

26 Pages Posted: 30 Dec 2020

See all articles by Andrey Malenko

Andrey Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR)

Anton Tsoy

University of Toronto - Department of Economics

Date Written: October 27, 2020

Abstract

In procurement auctions, suppliers' senior managers in charge of bidding often rely on advisors, such as project managers and technical specialists, to evaluate project costs. These advisors may be biased for inflating the costs due to agency or career concerns. We study the procurement agency's choice between sealed-bid static auctions and a dynamic Dutch auction in this setting. If the number of competing suppliers is small, static auctions result in lower expected costs than the Dutch auction. This ranking is reversed if procurement is sufficiently competitive. The Dutch auction is always more efficient regardless of the number of suppliers.

Keywords: procurement, advised bidders, cheap talk, agency problems

JEL Classification: D44, D47, D82

Suggested Citation

Malenko, Andrey and Tsoy, Anton, Procurement Auctions with Advised Bidders (October 27, 2020). Available at SSRN: https://ssrn.com/abstract=3720209 or http://dx.doi.org/10.2139/ssrn.3720209

Andrey Malenko

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Anton Tsoy (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

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