Procuring Substitutes with (Fine-Tuned) First-Price Auctions

7 Pages Posted: 31 Jul 2018 Last revised: 27 Aug 2018

See all articles by Leandro Arozamena

Leandro Arozamena

Universidad Torcuato Di Tella - Departamento de Economia; CONICET

Federico Weinschelbaum

Universidad Torcuato Di Tella - Departamento de Economia; CONICET

Elmar Wolfstetter

Humboldt University of Berlin - Faculty of Economics; Korea University - College of Economics and Commerce; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 5, 2018

Abstract

Suppose a firm uses inputs that are substitutes. Each input is supplied by a single contractor. The firm would like to make suppliers compete. However, since inputs are imperfect substitutes, resorting to winner-take-all competition may not be an attractive option. We allow the firm to use a modified first-price auction. It announces demand functions for each input and contractors simultaneously bid unit prices and sell according to announced input demands. We show that the firm has an incentive to announce demands that overstate input substitutability and understate its willingness to pay. In the extreme inputs are treated as perfect substitutes even if goods are independent.

Keywords: Procurement, Auctions, Mechanism Design

JEL Classification: C72, D44

Suggested Citation

Arozamena, Leandro and Weinschelbaum, Federico and Wolfstetter, Elmar G., Procuring Substitutes with (Fine-Tuned) First-Price Auctions (April 5, 2018). Economics Letters, Vol. 171, 2018: 115-118. Available at SSRN: https://ssrn.com/abstract=3212552 or http://dx.doi.org/10.2139/ssrn.3212552

Leandro Arozamena

Universidad Torcuato Di Tella - Departamento de Economia ( email )

Saenz Valiente 1010
Buenos Aires, C1428BIJ
Argentina

CONICET ( email )

Buenos Aires, C1425FQB
Argentina

Federico Weinschelbaum

Universidad Torcuato Di Tella - Departamento de Economia ( email )

Minones 2177
1428 Buenos Aires
Argentina
541151697183 (Phone)

CONICET ( email )

Buenos Aires, C1425FQB
Argentina

Elmar G. Wolfstetter (Contact Author)

Humboldt University of Berlin - Faculty of Economics ( email )

Institut für Wirtschaftstheorie I
Spandauer Strasse 1
Berlin
Germany
+49 30 2093 5652/3 (Phone)
+49 30 2093 5619 (Fax)

HOME PAGE: http://www2.hu-berlin.de/wt1wo/staff/wolfstetter/index.html

Korea University - College of Economics and Commerce ( email )

Anam-dong, Sungbuk-Ku
Seoul, 136-701
Korea

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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