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Incentive and sampling effects in procurement auctions with endogenous number of bidders

Title
Incentive and sampling effects in procurement auctions with endogenous number of bidders
Author
고영우
Keywords
Procurement; Contest; Auction; Innovation; Quality
Issue Date
2017-05
Publisher
ELSEVIER SCIENCE BV
Citation
INTERNATIONAL JOURNAL OF INDUSTRIAL ORGANIZATION, v. 52, page. 393-426
Abstract
We study an auction contest for a procurement of innovation. Firms exert effort and the resulting quality of innovation is ex ante uncertain. Given this uncertainty, there is a trade-off regarding tile number of participating firms in the contest: increasing the number of firms reduces each firm's chance of winning the auction, leading the firms to reduce effort level; meanwhile, the chance of obtaining a high quality of innovation increases with the number of firms due to the randomness of the quality. Thus, the procurer faces a nontrivial problem of how many firms to invite. We show that in the high level of randomness, it is optimal for the procurer to invite many firms. As the randomness vanishes, however, inviting only two firms is optimal. We also show that a fixed-prize tournament may outperform the auction when the randomness is large. (C) 2017 Elsevier B.V. All rights reserved.
URI
https://www.sciencedirect.com/science/article/pii/S0167718716301217?via%3Dihubhttps://repository.hanyang.ac.kr/handle/20.500.11754/113923
ISSN
0167-7187; 1873-7986
DOI
10.1016/j.ijindorg.2017.02.006
Appears in Collections:
COLLEGE OF ECONOMICS AND FINANCE[S](경제금융대학) > ECONOMICS & FINANCE(경제금융학부) > Articles
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