It’s All in the Interval - An imperfect measurements approach to estimate bidders’ costs in descending first price sealed bid auctions

A novel method to measure bidders’ costs in descending first price sealed bid auctions is introduced. The novelty is based on two intuitively appealing economic assumptions on which bidders’ costs are given an imperfect measurements interpretation. Theory provides no guidance as to the shape of the cost distributions, while empirical evidence suggests them being positively skewed. Consequently, a flexible distribution is assumed in an imperfect measurements setting. An illustration of the method on Swedish public procurement data is provided.