Start Date
11-12-2016 12:00 AM
Description
Principal-agent relationships in bidding firms are widespread in high-stakes auctions. Often only the agent has information about the value of the objects being sold. The board wants to maximize the profit, but the management wants to win the package with the highest value. In environments in which it is efficient for firms to coordinate on jointly winning packages, we show that the principals would coordinate, while the agents would not. We analyze environments with decreasing levels of information that the principal has about the valuations. Depending on the auction format it can be impossible to set budget constraints that align the agents’ strategies in equilibrium. The analysis helps explain price wars in high-stakes auctions.
Recommended Citation
Paulsen, Per and Bichler, Martin, "A Principal-Agent Model of Bidding Firms in Multi-Unit Auctions" (2016). ICIS 2016 Proceedings. 2.
https://aisel.aisnet.org/icis2016/Economics/Presentations/2
A Principal-Agent Model of Bidding Firms in Multi-Unit Auctions
Principal-agent relationships in bidding firms are widespread in high-stakes auctions. Often only the agent has information about the value of the objects being sold. The board wants to maximize the profit, but the management wants to win the package with the highest value. In environments in which it is efficient for firms to coordinate on jointly winning packages, we show that the principals would coordinate, while the agents would not. We analyze environments with decreasing levels of information that the principal has about the valuations. Depending on the auction format it can be impossible to set budget constraints that align the agents’ strategies in equilibrium. The analysis helps explain price wars in high-stakes auctions.