Design competition through multidimensional auctions

This article studies design competition in government procurement by developing a model of two-dimensional auctions, wherejirms 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 second preferred offer-are introduced and related to actualpractices. If the buyer can commit to a scoring rule in his best interest, .the resulting optimal scoring rule underrewards quality relative to the buyer's utility function and implements the optimal outcome for the buyer zinderjirstand second-score auctions. Absent the commitment power, the onlyfeasible scoring rule is the buyer's utilityfunction, zinder which ( I ) all three schemes yield the same expected utility to the buyer, and (2 )jirstand second-score auctions induce the first-best level of quality, which tzlrns out to be excessive from the buyer's point of view.