Saini, V (2009) Endogenous asymmetries in dynamic procurement auctions. PhD thesis, Johns Hopkins University, USA.
Abstract
This dissertation analyzes the behavior of forward-looking firms that compete with each other repeatedly in government procurement auctions. Such firms have been found to experience capacity constraints whereby the cost to a firm of adding another project to its roster increases with its preexisting commitments to unfinished projects. This fact complicates the bidding decisions of such firms: a firm must choose its current bid to account for the fact that winning in the current period will lead to a higher backlog of unfinished projects—and thus, higher costs—in future auctions, leading to a fall in future profits. Also, the existence of a capacity constraint gives firms an incentive to invest in additional capacity to gain a strategic advantage over their rivals. This dissertation brings together auction theory, the theory of dynamic games, and numerical methods to analyze the dynamic bidding and investment behavior of such firms.We begin by analyzing a model where two firms of similar sizes compete repeatedly for procurement contracts. As they win auctions, they stochastically accumulate a backlog of projects, and endogenously become asymmetric when their backlogs are different. We solve for the equilibrium of this dynamic game, and explore the efficacy of different procurement policies for the procurer. We find that it is most efficient and cost-minimizing for the procurer to give out small contracts frequently. We also find that the bidders perceive themselves to be less asymmetric the more forward-looking they are. Next, we consider situations like affirmative action programs where the firms may be exogenously asymmetric to start with. We find that affirmative action is more effective the less farsighted the bidders are. We also solve a two-period n-bidder model that allows for reserve prices set by the procurer. Finally, we endogenize firm size by allowing firms to repeatedly invest in capacity. We discover an increasing dominance force in this auction whereby even if the initial firm sizes are symmetric, the industry tends to gravitate towards asymmetric market shares in the long run.JEL classification: C73, D44, H57, L20
| Item Type: | Thesis (Doctoral) |
|---|---|
| Thesis advisor: | Harrington Jr., J E and Shum, M |
| Uncontrolled Keywords: | market; auction theory; games; bidding; government; investment |
| Index terms: | bidding, procurement policy, program, bidder, profit, auction theory, government procurement, market share, procurement contract, commitment, dissertation |
| Subjects: | bidding, market analysis, economic analysis, software systems, public policy, contractual arrangements, economics, psychology, procurement strategy, research dissemination and communication |
| Topics: | Business Strategy, Organizational Design, Procurement, Governance, Research Practice, Digital Applications |
| Descriptive scope: | 3 PCT |
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