The second-price bidding system under uncertainty

The Japanese government uses bidding auction systems to assign public construction projects to firms. Although the first-price auction is applied in most cases, it is known that firms do not bid their reservation prices, which makes the game-theoretic analysis difficult. The second-price auction has many nice properties and is expected to be applied more. We first compare the optimal strategies of the government in both systems under certainty, and find that the expected payoffs to the government are the same. Then we generalize the second-price auction to the situation with uncertain factors. Our result shows that the bidders bid in the same way as the situation without uncertainty.