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Ian L. Gale
Georgetown University - Department of Economics Donald B. Hausch
University of Wisconsin at Madison Mark Stegeman
Virginia Polytechnic Institute & State University - Department of Economics
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11 Jan 01
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Last Revised:
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23 Mar 01
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Abstract:
Two symmetric sellers are approached sequentially by fragmented buyers. Each buyer conducts a second-price auction and purchases from the seller who offers the lower price. Winning an auction affects bidding for future contracts because the sellers have nonconstant marginal costs. We assume that the sellers are
completely informed, and we study the unique equilibrium that survives iterated elimination of weakly dominated strategies. If subcontracting between the sellers is impossible, the final allocation of contracts is generally inefficient. If postauction subcontracting is possible, the sellers can be worse off, ex ante, than when subcontracting is impossible.
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