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Communication in procurement: silence is not golden

Abstract : We study the effect of cheap talk between bidders on the outcome of a first-price procurement game with N sellers in which bidding is costly. Although no side-payements or commitments are allowed, we show that the game admits a unique family of symmetric equilibria in which sellers use communication to collude on a subset of participants and/or to reveal information about their valuation. Contrary to the conventional wisdom, the buyer's expected revenue and the surplus need not decrease with collusion, and the ex-ante surplus increases with the amount of information revealed in equilibrium. This is because when communication is cheap, bidders cannot directly collude on higher prices. Rather, communication leads to a competition between fewer, but more aggressive bidders, which entails more allocative efficiency and a decrease in the total wasteful entry cost.
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Preprints, Working Papers, ...
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https://hal.archives-ouvertes.fr/hal-00856078
Contributor : Lucie Ménager <>
Submitted on : Friday, August 30, 2013 - 2:19:40 PM
Last modification on : Thursday, February 21, 2019 - 11:02:54 AM
Long-term archiving on: : Thursday, April 6, 2017 - 11:01:16 AM

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Lucie Ménager. Communication in procurement: silence is not golden. 2013. ⟨hal-00856078v1⟩

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