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Entry and Bidding in Common and Private Value Auctions with an Unknown Number of Rivals

24 Pages Posted: 5 Sep 2008 Last revised: 13 Jan 2009

Dakshina G. De Silva

Department of Economics, Lancaster University Management School

Thomas D. Jeitschko

Michigan State University - Department of Economics

Georgia Kosmopoulou

University of Oklahoma - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 23, 2008

Abstract

In many procurement auctions bidders do not know how many rivals they face at the time they incur the cost of preparing their bids. We show in a theoretical model that regardless of whether the procurement is characterized by private or by common values an increase in the potential number of bidders may lead to higher procurement costs. This raises potential policy questions of whether and how entry should be encouraged in public procurement auctions.

We use evidence from auctions of construction contracts to estimate the effect of an increase in the pool of potential bidders on entry and auction prices when entry and bidding decisions are made sequentially with no knowledge of the number or identity of the actual competitors.

Keywords: Procurement Auctions, Private Values, Common Values, Endogenous Entry

JEL Classification: H4, H57, D44

Suggested Citation

De Silva, Dakshina G. and Jeitschko, Thomas D. and Kosmopoulou, Georgia, Entry and Bidding in Common and Private Value Auctions with an Unknown Number of Rivals (December 23, 2008). Available at SSRN: https://ssrn.com/abstract=1263285 or http://dx.doi.org/10.2139/ssrn.1263285

Dakshina G. De Silva

Department of Economics, Lancaster University Management School ( email )

Lancaster LA1 4YX
United Kingdom

Thomas D. Jeitschko (Contact Author)

Michigan State University - Department of Economics ( email )

110 Marshall-Adams Hall
East Lansing, MI 48824
United States
517-355-8302 (Phone)
517-432-1068 (Fax)

HOME PAGE: http://www.msu.edu/~jeitschk/

Georgia Kosmopoulou

University of Oklahoma - Department of Economics ( email )

729 Elm Avenue
203 Hester hall
Norman, OK 73019-2103
United States
405-325-3083 (Phone)
405-325-5842 (Fax)

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