Non-aggressive bidding behavior and the "winner's curse"
Name
MIT-EL-80-013WP-06684288.pdf
Size
711.23 KB
Format
Adobe PDF
Checksum (MD5)
88d1e55ad7af9927823842c577c1ccac
Author(s)
Smith, James Lee
Date Issued
April 1980
Publisher
MIT Energy Laboratory
Series/Report no.
MIT-EL
80-013wp
Abstract
Previous authors have noted a curious result that arises in the
context of sealed-bid auctions: in certain situations it is in
the bidder's interest to respond non-aggressively to increased
competition. We consider a decision-theoretic formulation of the
bidder's problem, and derive necessary conditions for the choice
of a non-aggressive bidding strategy. The resulting conditions
relate closely to a phenomenon that has been described rather
loosely by bidding practitioners as the "winner's curse". In the
course of this paper we develop a specific definition of the winner's
curse, and demonstrate how it affects the firm's competitive
behavior.
Subjects
Letting of contracts
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