The subtleties of auctions
A common form of trading, auctions are important in a number of areas, including business and government. The sales are seen as the most efficient means of achieving the best price, an assumption that may be flawed or oversimplified. Such was the motivation for the investigation by the EU project 'Auctions with investments: Timing and information' (AUCTIONS AND INVEST). Funded through the Marie Curie career development programme for researchers, the project ran for three years to May 2014. The theoretical study aimed to further understanding of auctions in terms of investment decisions and private information. The project examined firms' incentives and preferences concerning investment, practices concerning deterring competitors, whether more efficient first bidders invest more, and seller preferences regarding investment. The research uniquely considered the importance of private information, conventionally assumed not to be a factor. Other original factors included cost-reducing investments made after a procurement option, which is contrasted against the prevailing view of the pre-investment case. Last of the unique considerations was observability, comparing two extreme examples of observable and unobservable investments. Research was conducted through modelling work, with the model being used to compare different variables of information availability. Project outcomes will aid future empirical studies of investment and entry in auctions. As such, the work will help to inform policymakers, through clarifying potential complexities of the auction environment.
Keywords
Auction, trading, investment decisions, private information, incentives, competitors, first bidder, observability
