NONPARAMETRIC ESTIMATION OF ENTRY COST IN FIRST-PRICE PROCUREMENT AUCTIONS
Article first published online: 5 MAR 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 28, Issue 6, pages 1046–1065, September/October 2013
How to Cite
Xu, P. (2013), NONPARAMETRIC ESTIMATION OF ENTRY COST IN FIRST-PRICE PROCUREMENT AUCTIONS. J. Appl. Econ., 28: 1046–1065. doi: 10.1002/jae.2264
- Issue published online: 18 SEP 2013
- Article first published online: 5 MAR 2012
In this paper, I investigate Samuelson's low-price auction model with entry costs. The model's equilibrium implies that the distribution of bids is truncated at the threshold for participation. I use the model to estimate the cost of participation in Michigan highway procurement auctions. The null hypothesis of zero entry costs is rejected. Using my empirical results, I then construct an estimate of the optimal auction, which employs regular policy tools such as entry fees. Finally, I demonstrate the savings that the Michigan government could have made on payments if optimal auctions had been employed. Copyright © 2012 John Wiley & Sons, Ltd.