Selling a Cost Reducing Production Technique through Auction in a Duopolistic Industry

This paper considers a two-stage game, where in the first stage, two firms bid non-cooperatively for a production technique that leads to a reduction in cost. Following the auction in the second stage of the game these firms compete against each other in a duopolistic industry. The amount of cost reduction for every firm following the adoption of the production technique is a private information to the concerned firm. In the model, the auctioneer is the government. Before the auction, the government announces whether she will reveal the bids after the auction, which is her choice variable. This paper makes an attempt to figure out the welfare implications of the bid disclosure policies under different parametric and market conditions. Our findings suggest that for the Bertrand competition in the second stage the revelation of the bids does not have any impact on the level of social welfare. For the Cournot competition in the second stage, whether the disclosure of bids would lead to higher level of social welfare than when the bids are suppressed, is determined by parametric conditions.