THE DESIGN OF AUCTIONS AND TENDERS WITH QUALITY THRESHOLDS - THE SYMMETRICAL CASE

Three designs of auctions with quality thresholds are considered. The quality threshold is not known with certainty by the bidders. In one scheme quality plans submitted by potential bidders are evaluated first and price bids for only those plans which have been approved are invited. The second scheme has price bids first to yield a priority for scrutinising quality. A third has simultaneous decisions on price and quality. The model yields an equivalence result. The use of reserve prices to produce social optimality is then investigated. The theory is used to discuss the recent auction for UK television franchises.