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Respond to the question: AuctionBid Strategy for Government?

03/23/2002 02:00 PM by Khurram Dastgir-Khan; Auction/Bid Strategy for Government

What is the optimum strategy for governments when (1) auctioning out certain functions i.e., tax collection, where the HIGHEST bid is sucessful; and (2) inviting bids for provision of services or materials, where the LOWEST bid is successful? In both cases, MAXIMIZING benefit to the exchequer is the aim. In countries such as Pakistan, preventing cartel-formation and minimnizing corruption are also complementary aims.

I remember reading somewhere that the optimum strategy for the government is to announce beforehand that the SECOND highest (when auctioning out) or the SECOND lowest (when inviting bids) will be accepted. Is this correct? If not, then can game theory guide us.

Khurram Dastgir-Khan (Mr.)
Gujranwala, PAKISTAN [Manage messages]