Procurement Auction with Strategic Sellers and a Binding Buying Constraint
Tania Domic Bouza
Tesis, Magíster en Economía, IE-PUC, 2018
Abstract: The present paper solves a sequential procurement auction in which the auctioneer needs to buy a fixed amount of inventory over a finite time horizon. Bidders strategically submit supply functions which are aggregated by the auctioneer until they reach the required amount. The auctioneer has an outside option which is assumed to be exogenous and highly costly. Results show that the equilibrium price of the second
stage is fixed at the price cap and that there are multiple equilibria reports in pure strategies. We study a symmetric case which considers interior solutions only, and a maximal case, which derives a corner solution where the more productive firm monopolizes the industry in the first period. The optimal price posted by the auctioneer in the first stage is higher in the symmetric case than the maximal case as it has more space to manipulate firms’ reports. In spite of this, both cases are preferable to a single-period mechanism since the auctioneer manages to save expenses through the purchase of inventory units at a price strictly lower than the price cap.