The value of information in competitive bidding

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Abstract

We consider the situation where two players compete to obtain a valuable object, e.g. a stand of timber in a competitive, sealed-bid environment. Prior to submitting a bid, each player may sample the stand while incurring a common, non-zero cost for each observation. On one hand, a player wishes to take as few observations as possible due to the cost of collecting information. However, one also wishes to obtain as many observations as possible to avoid a bid that overstates the value of the resource. Given different assumptions on the sampling process, the informational structure, and underlying distribution of value, we derive equilibrium bidding strategies. We use these bidding strategies to solve for equilibrium in an information collection problem from the forest products industry.

Original languageEnglish (US)
Pages (from-to)322-333
Number of pages12
JournalEuropean Journal of Operational Research
Volume36
Issue number3
DOIs
Publication statusPublished - Sep 1988

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All Science Journal Classification (ASJC) codes

  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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