Fuzzy Price-Quality Ratio Procurement under Incomplete Information

We analyse a procurement auction in which sellers are distinguished on the basis of the ratios of quality per unit of money they offer. Sellers are privately informed on the quality of the technology or good they offer. We assume that the procurer cannot perfectly identify the best offer. Thus, with positive (and decreasing) probability, the second, third, etc. best ratio offered is selected as the winner of the auction. We model the decision process as based on a general noisy ranking of offers. We show that, although the problem seems to be analytically intractable in general, there exists a simple symmetric pure-strategy equilibrium, provided that the procurer’s ranking technology employs the right degree of noisiness.