I thank editor Phil Haile and two anonymous referees for very careful comments that have greatly benefited the article. I also wish to acknowledge helpful comments from Joe Harrington, Thomas Jeitschko, Chris Metcalf, John Rust, Matt Shum, Kevin Thom, Tony Williams, Shmuel Zamir, Zhixiang Zhang, seminar participants at Bates White, Clemson, the FTC, DePaul, Johns Hopkins, Oberlin, University of Georgia, and University of Wisconsin–Madison, and conference participants at MEA 2010, Midwest Theory Fall 2009, International Industrial Organization Conference 2009, Canadian Economics Association Meetings 2008, and the La Pietra-Mondragone Workshop 2008. This article is based on two chapters of my Ph.D. dissertation at Johns Hopkins University. The Web appendix and the Matlab code for the article are available from my website at http://new.oberlin.edu.
Endogenous asymmetry in a dynamic procurement auction
Version of Record online: 24 JAN 2013
Copyright © 2013, RAND.
The RAND Journal of Economics
Volume 43, Issue 4, pages 726–760, Winter 2012
How to Cite
Saini, V. (2012), Endogenous asymmetry in a dynamic procurement auction. The RAND Journal of Economics, 43: 726–760. doi: 10.1111/1756-2171.12006
- Issue online: 24 JAN 2013
- Version of Record online: 24 JAN 2013
We show how to numerically solve for a Markov-perfect equilibrium of a dynamic auction game where a procurer repeatedly purchases construction services from capacity-constrained firms. We find that the procurer is best off scheduling frequent auctions for small project sizes. Otherwise, firm capacity utilization rates become larger and more asymmetric, which softens competition and increases procurement costs. We also find that forward-looking bidding dampens the competition-softening effects of asymmetry: farsighted firms compete more intensely than myopic ones. This can undermine the goal of a bid-preference-style affirmative action program: more farsighted firms respond less to the asymmetry induced via bid preferences.