We investigate …rms' incentives for cost reduction in the …rst price sealed bid auction, a format largely used for procurement. A central feature of the model is that we allow …rms to be heterogeneous. Though private value …rst price auctions are not games with monotonic best responses, we …nd that for comparative statics purposes they behave like these games. In particular, …rms will tend to underinvest in cost reduction because they anticipate …ercer head-on competition. Using the second price auction as a benchmark, we also …nd that the …rst price auction will elicit less investment from market participants. Moreover, both auction formats tend to favor investment by the current market leader and are therefore likely to reinforce asymmetries among market participants.
a b s t r a c tWhen the owner of an object sells it through an auction run by an agent of hers, corruption may appear. In a first-price auction, corruption can make honest bidders more or less aggressive, or their behavior can remain unchanged. We identify sufficient conditions for each of the three possibilities. We analyze the effects of corruption on efficiency, bidders' welfare and expected revenue. Our results apply as well to the situation-unrelated to corruption-where one of the bidders is granted a right of first refusal.
a b s t r a c tWhen the owner of an object sells it through an auction run by an agent of hers, corruption may appear. In a first-price auction, corruption can make honest bidders more or less aggressive, or their behavior can remain unchanged. We identify sufficient conditions for each of the three possibilities. We analyze the effects of corruption on efficiency, bidders' welfare and expected revenue. Our results apply as well to the situation-unrelated to corruption-where one of the bidders is granted a right of first refusal.
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