The Impact of Capacity Costs on Bidding Strategies in Procurement Auctions

This paper analyzes the impact of capacity costs on bidding strategies of firms participating in procurement auctions. More efficient firms will invest in advance due to their high probability of winning the auction while less efficient bidders prefer to wait with their investments until the outcome of the auction is known. However, in equilibrium both types of firms include a coverage for their investment costs into their bids and therefore adopt a full cost pricing policy