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Bidding to ensure maximum investment

https://techcrunch.com/2018/07/26/jedi-10-billion-department-of-defense-bidding/

 

The article addresses a $10 Billion auction by the Pentagon for a cloud computing contract. This Joint Enterprise Defense Infrastructure contract (JEDI), has been made to be alluring to companies that do not normally do business with the Department of Defense. The auction is a flavor of the first price auction, where the winner takes all, having to fulfill the conditions that they themselves set down.

The high compensation for this contract was to attract companies to ignore the controversy that companies have faced before for providing services to the Department of Defense, and hence providing the department the best that technology has to offer. A form of the first price auction forces the respective companies to give more to the Pentagon than of the bid was of the form of a second price auction, as even though the dominant strategy is to bid below indifference price (in this case service) and attempt to reach as close as possible to the second highest bidder, it is most likely that the highest bidder will bid a bit more than the second highest bidder. This will ensure more effort is invested in the contract from the companies side.

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