Fernando Branco

The Design of Multidimensional Auctions

Procurement auctions usually require the bid to specify several characteristics of the contract to be fulfilled. In this article I study the design of such mechanisms, allowing for a special case of correlation of the firms costs. I describe the properties of optimal mechanisms and study the design of multidimensional auctions. Contrary to the independent-costs model, to implement the optimal outcome the procurer will need to use a two-stage auction: in the first stage the procurer selects one firm; in the second stage he bargains to readjust the level of quality to be provided.

Sequential auctions with synergies: An example

Abstract An equilibrium in an example of a two unit sequential ascending price auction where some bidders have superadditive values is presented. The equilibrium is in pure strategies. In equilibrium the expected price declines from the first to the second auction.

Procurement Favouritism and Technology Adoption

The design of cost minimizing procurement rules for the selection of contractors among distinct technological groups requires the favouritism of inefficient firms. It is unclear whether these policies provide incentives for inefficient firms to adopt more efficient technologies. In this paper the inefficient firm may adopt the efficient technology at some cost. Government policy can be effective for an intermediate range of adoption costs. To induce adoption, the government should commit to favour the (initially) inefficient firm, despite both firms eventually having the same technology. Even with limited government commitment, optimal favouritism provides more incentives for technology adoption than a symmetric mechanism.

Too Much Information? Information Provision and Search Costs

A seller often needs to determine the amount of product information to provide to consumers. We model costly consumer information search in the presence of limited information. We derive the consumer’s optimal stopping rule for the search process. We find that, in general, there is an intermediate amount of information that maximizes the likelihood of purchase. If too much information is provided, some of it is not as useful for the purchase decision, the average informativeness per search occasion is too low, and consumers end up choosing not to purchase the product. If too little information is provided, consumers may end up not having sufficient information to decide to purchase the product. The optimal amount of information increases with the consumer’s ex ante valuation of the product, because with greater ex ante valuation by the consumer, the firm wants to offer sufficient information for the consumer to be less likely to run out of information to check. One can also show that there is an intermediate amount of information that maximizes the consumer’s expected utility from the search problem (social welfare under some assumptions). Furthermore, this amount may be smaller than that which maximizes the probability of purchase; that is, the market outcome may lead to information overload with respect to the social welfare optimum. This paper can be seen as providing conditions under which too much information may hurt consumer decision making. Numerical analysis shows also that if consumers can choose to some extent which attributes to search through (but not perfectly), or if the firm can structure the information searched by consumers, the amount of information that maximizes the probability of purchase increases, but is close to the amount of information that maximizes the probability of purchase when the consumer cannot costlessly choose which attributes to search through.

On the superiority of the multiple round ascending bid auction

Abstract I compare the equilibria of standard auctions for two objects when there are unit and bundle bidders. In the example considered, the multiple round ascending bid auction performs better than the other mechanisms in both revenue and efficiency.

Auctioning incentive contracts: The common cost, independent types case

Laffont and Tirole (1987) analyzed the problem of a regulator that wants to select one ofn firms to carry out a single indivisible project when the firms have private and independent costs and have the possibility of an ex-post investment in (non-observable) effort to reduce the (observable) cost.This paper generalizes the analysis to a model of common costs, unknown at the bidding stage, while keeping the assumption of independent types. I show that the main characteristics of the private costs model are kept in a common cost framework. I provide two mechanisms that may be used to implement the optimal contract.