Journal Article

Increasing Competition and the Winner's Curse: Evidence from Procurement

Han Hong and Matthew Shum

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 69, issue 4, pages 871-898
Published in print October 2002 | ISSN: 0034-6527
Published online October 2002 | e-ISSN: 1467-937X | DOI:
Increasing Competition and the Winner's Curse: Evidence from Procurement

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We assess empirically the effects of the winner's curse which, in common-value auctions, counsels more conservative bidding as the number of competitors increases. First, we construct an econometric model of an auction in which bidders' preferences have both common- and private-value components, and propose a new monotone quantile approach which facilitates estimation of this model. Second, we estimate the model using bids from procurement auctions held by the State of New Jersey. For a large subset of these auctions, we find that median procurement costs rise as competition intensifies. In this setting, then, asymmetric information overturns the common economic wisdom that more competition is always desirable.

Journal Article.  0 words. 

Subjects: Economics

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