Dynamics in Non-Binding Procurement Auctions with Boundedly Rational Bidders
Auction theory has always recognised that in many settings bidders’ strategies can be influenced by the revelation of some information that is privately held by the auctioneer. Usually it is assumed that the auctioneer holds some information regarding the item put up for auction. As a consequence, its revelation can allow bidders to have a more accurate estimate of their valuation for the object and to make less uncertain their utility in case their bid is accepted.1
Some recent papers investigate the importance of a different kind of auctioneer’s private information: in multidimensional auctions, bidders can be ignorant about the real awarding rule. Katok and Wambach (2008) define this competitive mechanism as “non-binding auctions”. More specifically, it is often assumed that a buyer can rank different bids according not only to the prices, but also to the quality associated to each proposals. The qualitative assessment usually depends on buyer’s preferences that can be her private information because they are related to her tastes or to her specific requirements.2 In this case bidders can always calculate thoroughly the ex-post profit associated to each specific bid; however, the information policy adopted by the buyer influences their estimate of the probability to be the winner. When the buyer chooses to reveal privately (publicly) her information suppliers are involved in a standard auction setting, with independent private (public) values. Conversely, the case in which the buyer conceals her information represents a novelty in the auction literature, and that is why we want to explore in more depth the characteristics of this game and the properties of its Nash equilibrium.
KeywordsNash Equilibrium Reaction Function Auction Model Cournot Model Hotelling Model
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