OPTIMAL PROCUREMENT MECHANISMS FOR AN INFORMED BUYER

This paper studies a buyer (e.g., a government agency) offering a proc urement contract to a number of privately informed suppliers. The buye r has private information about her demand for the product to be procu red. The optimal mechanisms for all types of the buyer are examined. I t is optimal for the buyer to reveal her demand information through th e contract offer and use a first-price sealed-bid auction procedure to award the contract, announcing her reserve price in advance. Any seco nd-price auction is shown to yield less expected surplus for the buyer than the optimal first-price auction does when the buyer's marginal w illingness to pay decreases with quantity.