Designing Auctions for Concessions--Guessing the Right Value to Bid and the Winner's Curse
Author: Michael Klein Date: 11/1/1998 (PDF, 200KB)
Once a government has decided to award a concession by auction, it needs to decide what kind of auction to use: a first- or second-price auction, sealed or open bid, and sequential or simultaneous bids for multiple items. The choice of auction method is affected by arguments about the political sustainability of the outcome; firms' bidding strategies, including the risk of the winner's curse; and the risk of collusion among bidders. All these ingredients combine to determine whether an auction design yields value; how that value is distributed among bidders, consumers, and the government; and whether the deal will last. This Note analyzes the options.