[UTMD-096] Uncertain Quality Evaluation in Procurement Auctions (by Ryuji Sano, Masanori Tsuruoka)

Ryuji Sano, Masanori Tsuruoka

This study examines bidder competition over price and quality in procurement auctions in which subjective quality evaluation creates uncertainty. We derive the symmetric Bayesian Nash equilibrium for a first-score auction, in which bidders submit cautious bids because the determination of a winner depends on chance. In a second-score auction, a truth-telling equilibrium exists and evaluation uncertainty does not affect bidding behavior. As the quality evaluation becomes more precise, the expected score and quality improve and expected price decreases. Moreover, the second-score auction is more efficient and achieves a better expected score, price, and quality than the first-score auction.