Seminar: Vladimir Mares, Kellogg School of Management, Northwestern University

Title: On the Suboptimality of First-Price Rules.

Buyers engaged in procurement can face substantially differentiated sellers. The need to balance pricing concerns and preferences leads to the use of handicapping rules, whereby preferred sellers enjoy a formal advantage in the procurement rules. Given the prevalence of such mechanisms it is of substantial practical and theoretical importance to understand and rank the outcomes of different mechanisms. This paper analyzes first price auctions with concave handicapping rules, which are the most common means of skewing auction by buyers who have a preferred subset of sellers. We find conditions under which any first price auction with concave handicapping is ex-post dominated by a simple second-price auction design or its open equivalent.