A comparison of a simple procurement auction and generalized Nash bargaining

Abstract

This paper presents a comparison mechanism for a simple procurement auction and generalized Nash bargaining solution in a procurement circumstance. The buyer who hopes to fulfill a project has two options. First, she may award the project to the old provider with an efficient quality by bargaining. Second, she may give the project to the firm who submits the lowest bid through a simple procurement second-price sealed-bid auction with a pre-fixed quality. We compare the expected revenue in the auction with the deterministic profit of the bargaining. In different parameters cases, we find the borderline functions between the two options with respect to the buyer’s bargaining power and the amount of bidders. We also compare our simple procurement auction (SPA) with the optimal multidimensional bid auction by Che (1993), and find our model protects the buyer’s private valuation information by forfeiting some profits. Some properties of the difference between the two auctions are proposed, especially there is no revenue difference when the amount of bidders approaches infinity.

Keywords

Comparison / simple procurement auction / generalized Nash bargaining / multidimensional auction

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