Abstract
Bidding competition plays an important role in price discovery and the determination of suppliers in international grains. We analyze bidding competition in this paper in the international market for wheat for a specific importer. Optimal bids and expected payoffs were derived for a prototypical bidder. We analyzed the impacts of the number of competitors, information, and cost differentials. In each case, we quantified the likely impact on optimal bids and expected payoffs. Another interesting effect was that of correlated bids, which had the effect of increasing the probability of winning, optimal bids, and expected profits. Finally, we explored the prospective impacts of the winner's curse on optimal bids.
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