Competitive Bidding with a Bid Floor

Abstract

We study competitive bidding with an explicit bid floor, motivated by min-imum wage legislation and minimum labor standard imposed from NGOs or organized labor. We derive the equilibrium strategies in, and compare the expected procurement costs among, the second-price, first-price, English, and Dutch auctions in a private-cost model. For the English auction, we also con-sider a variant motivated by the buy-it-now option in eBay auctions. We find that the first-price auction and the aforementioned English auction lead to ex-actly the same outcome, corresponding to a lower expected procurement cost than under the second-price auction and the standard English auction