Bidding for Unit-Price Contracts - How Craftsmen Should Bid

We analyse the bidding for unit-price contracts, a very common procurement auction. With a unit price contract, not the provision of the good but the employment of several kinds of inputs is priced. The seller charges a unit price for the employed quantity of each input. To select one seller, a linear selection rule is used to rank submitted lists of unit prices. In this paper, we model heterogeneous technologies of craftsmen: rms di er in their requirement of input-quantities. An equilibrium of this model is found. The composition of submitted lists does not mirror the cost structure and the selection probability is not monotone in the type. Sometimes the lamer of two craftsmen is selected, enhancing all but the very lame types to bid very aggressively. Caused by this, unit-price bidding can be cheaper (require a lower expected payment) than standard auctions like the rst price auction. I thank Christian Ewerhart, Leonardo Felli, David Kennedy, Jozsef Sakovics and seminar participants at Mannheim and Tilburg for discussions and helpful comments. I'm especially grateful to Benny Moldovanu and Jan Vleugels for their help. My work on this topic started while I was student at the University of Bonn, visiting the London School of Economics with nancial support from the German Academic Exchange Service (DAAD). I am grateful to both universities' hospitality and support. Financial support from the Deutsche Forschungsgemeinschaft, Sonderforschungsbereich 504 at the University of Mannheim, is gratefully acknowledged.