Sequential procurement with limited commitment


Fugger, Nicolas ; Gretschko, Vitali ; Pollrich, Martin


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URL: https://madoc.bib.uni-mannheim.de/52736
URN: urn:nbn:de:bsz:180-madoc-527369
Document Type: Working paper
Year of publication: 2019
The title of a journal, publication series: ZEW Discussion Papers
Volume: 19-030
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
School of Law and Economics > VWL, Marktdesign (Gretschko 2017-)
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Abstract: We analyze the problem of a buyer who chooses a supplier for a long-term relationship via an auction. The buyer lacks commitment to not renegotiate the terms of the contract in the long run. Thus, suppliers are cautious about the information revealed during the auction. We show theoretically and experimentally that first-price auctions perform poorly in terms of efficiency and buyer surplus. Suppliers may pool on a high bid to conceal information. Second-price auctions retain their efficient equilibrium and generate substantial surplus for the buyer. We demonstrate that optimal mechanisms require concealing the winning bid with a strictly positive probability.

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Fugger, Nicolas ; Gretschko, Vitali ; Pollrich, Martin (2019) Sequential procurement with limited commitment. Open Access ZEW Discussion Papers Mannheim 19-030 [Working paper]
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