Prisoner's Dilemma, Coordination
The Auction Race
The Auction Race is a Prisoner's Dilemma and Coordination scenario. The core lesson: An auction designed to drive prices down can drive projects into the ground. A public authority is auctioning contracts to build renewable capacity. You run a developer bidding against rivals. DecisionPlay maps the players, payoffs, and equilibrium dynamics that shape how this situation typically resolves.
The situation
A public authority is auctioning contracts to build renewable capacity. You run a developer bidding against rivals. Bidding low wins the contract, but bid too low and the project cannot be financed or delivered, leaving you exposed to penalties. You suspect your competitors are tempted to underbid too. The authority sets the rules that decide how far this race can go. The round opens tomorrow and your team wants to win at any price.
Background
Competitive auctions are prized for pushing costs down, but a poorly designed one rewards the most reckless bid rather than the most deliverable project. When every bidder fears the others will lowball, each shaves its own price until the winner is the firm that most misjudged its costs. The result is cheap contracts and unbuilt capacity.
What this reveals
The rules are the real game
In a badly designed auction, every bidder's incentive to underbid drags the whole field to a price nobody can deliver on. It is a collective trap: each move is individually tempting and collectively ruinous. The outcome is decided less by the bidders than by the rules they bid under.
How to counter it: Look past your own bid to the structure. Push for deposits, delivery penalties, and readiness screens that make discipline pay. When you cannot fix the rules, know that walking away from a race to the bottom is a strategy, not a surrender.
A question to sit with
When did winning a competition cost you more than losing it would have?
Frequently asked questions
- What game theory concept does The Auction Race illustrate?
- The Auction Race illustrates Prisoner's Dilemma, Coordination. An auction designed to drive prices down can drive projects into the ground.
- What is the situation in The Auction Race?
- A public authority is auctioning contracts to build renewable capacity. You run a developer bidding against rivals. Bidding low wins the contract, but bid too low and the project cannot be financed or delivered, leaving you exposed to penalties.
- What does The Auction Race reveal about how people decide?
- The rules are the real game. In a badly designed auction, every bidder's incentive to underbid drags the whole field to a price nobody can deliver on. It is a collective trap: each move is individually tempting and collectively ruinous. The outcome is decided less by the bidders than by the rules they bid under.
- How do you avoid the trap in The Auction Race?
- Look past your own bid to the structure. Push for deposits, delivery penalties, and readiness screens that make discipline pay. When you cannot fix the rules, know that walking away from a race to the bottom is a strategy, not a surrender.
- What is the research behind The Auction Race?
- Competitive auctions are prized for pushing costs down, but a poorly designed one rewards the most reckless bid rather than the most deliverable project. When every bidder fears the others will lowball, each shaves its own price until the winner is the firm that most misjudged its costs. The result is cheap contracts and unbuilt capacity.
- How long does The Auction Race take to play?
- About 10 min, at advanced difficulty, across 3 decision points. It runs in your browser with no account and no sign-in.
Keep exploring
More Sustainable Energy scenarios, or browse all scenarios. New to this? Start with how DecisionPlay works or the game theory glossary.
Topics: sustainable-energy, auction, market-design