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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan

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Online
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1935-1704
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Free Riding in Combinatorial First-Price Sealed-Bid Auctions

François Maréchal
  • 1CRESE, University of Franche-Comté,
/ Pierre-Henri Morand
  • 2CRESE, University of Franche-Comté,
Published Online: 2009-12-09 | DOI: https://doi.org/10.2202/1935-1704.1552

We consider an allotted procurement contract awarded by means of a combinatorial first-price sealed-bid auction. Two small firms and a larger firm are competing. Each small firm is interested in a single lot whereas the large firm transmits a global offer. Under a specific informational framework, we derive the asymmetric combinatorial equilibrium bidding strategies and show that they exhibit a free-riding effect. We show that this effect is increasing with the level of uncertainty and decreasing with risk aversion. When all the firms are risk neutral or equally risk averse, the magnitude of the free-riding effect is unaffected by the division of the contract chosen by the public buyer. Nevertheless, when each firm exhibits its own risk aversion parameter, we find that the free-riding effect is reduced (resp. increased) as the more risk averse small firm competes for a larger (resp. smaller) part of the contract.

Keywords: free-riding; combinatorial auctions

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Published Online: 2009-12-09


Citation Information: The B.E. Journal of Theoretical Economics, ISSN (Online) 1935-1704, DOI: https://doi.org/10.2202/1935-1704.1552.

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