Two-Stage Procurement Auction with Bidders of Asymmetric Capacity

This article examines a two-stage second-price procurement auction, to which suppliers with asymmetric capacities are invited; suppliers with small capacity are only able to attend the second stage of the auction. By building and solving the game theory model, we derive the optimal bidding strategies for both large and small suppliers. Through simulation, we draw the following conclusions: first, although the expected procurement cost will be reduced, large suppliers tend to inflate their bids at the first stage; second, as the number of small bidders increases, buyers may also experience a higher procurement cost.