DESIGN COMPETITION THROUGH MULTIDIMENSIONAL AUCTIONS

This article studies design competition in government procurement by d eveloping a model of two-dimensional auctions, where firms bid on both price and quality, and bids are evaluated by a scoring rule designed by a buyer. Three auction schemes-first score, second score, and secon d preferred offer-are introduced and related to actual practices. If t he buyer can commit to a scoring rule in his best interest, the result ing optimal scoring rule underrewards quality relative to the buyer's utility function and implements the optimal outcome for the buyer unde r first- and second-score auctions. Absent the commitment power, the o nly feasible scoring rule is the buyer's utility function, under which (1) all three schemes yield the same expected utility to the buyer, a nd (2) first- and second-score auctions induce the first-best level of quality, which turns out to be excessive from the buyer's point of vi ew.