Information Policies in Procurement Auctions with Heterogeneous Suppliers

This work studies a reverse auction inwhich a buyer needs to acquire a given good or service from suppliers having different costs. The sellers are characterized by qualities that are the buyer’s private information. Comparing the outcomes of different policies regarding the revelation of such information prior to the auction, we find that maximizing the procurer’s expected utility requires either concealing or privately revealing the suppliers’ quality, depending on the degree of heterogeneity in costs and qualities. Asymmetric revelation, if allowed, increases the buyer’s expected utility when costs differences are large. Conversely social efficiency calls for public disclosure of qualities. Hence there is a trade-off between efficiency and rent extraction by which the buyer has incentive to withhold information that would benefit social welfare.