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

Posted: 19 May 2010

See all articles by Dakshina G. De Silva

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: 2009

Abstract

In many procurement auctions bidders do not know how many rivals they face at the time that 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 or limited 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: Bid Preparation Costs, Common Values, Endogenous Entry, Private Values, Procurement Auctions

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 (2009). Review of Industrial Organization, Vol. 35, Nos. 1 & 2, 2009. Available at SSRN: https://ssrn.com/abstract=1611729

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 )

633 Elm Avenue
306 Ellison Hall
Norman, OK 73019
United States
405-325-3083 (Phone)
405-325-5842 (Fax)

HOME PAGE: http://georgiakosmopoulou.oucreate.com/

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
435
PlumX Metrics