On Participation in Sequential Procurement Auctions

Abstract

We analyze entry and bidding behavior of capacity-constrained firms in a sequence of two procurement auctions. Firms with a cost advantage in completing the project auctioned off at the end of the sequence may enter the unloved first auction hoping to loose it. The advise not to participate in an auction hoping to loose, however, is not helpful. In particular, it is shown how bidding behavior in the first auction is affected if the option value of the second auction varies.