Capacity Constraints and Information Revelation In Procurement Auctions

Abstract

We utilize laboratory experiments to study behavior in sequential procurement auctions where winning an auction round increases a bidder's future costs. The game admits competitive as well as bid-rotation style collusive equilibria. We find that (a) bidders show some propensity to account for the opportunity cost of winning an auction, but underestimate its magnitude; (b) revealing all bids (instead of only the winning bid) after each round leads to dramatically higher procurement costs. The rise in procurement costs is accompanied by an increase in very high (extreme) bids, a fraction of which appear to be collusive in nature.

Publisher

Wiley

Publication Date

4-1-2015

Publication Title

Economic Inquiry

Department

Economics

Additional Department

Environmental Studies

Document Type

Article

DOI

https://dx.doi.org/10.1111/ecin.12158

Notes

Viplav Saini, Economics
Jordan Suter, Economics and Environmental Studies

Language

English

Format

text

Link to Full Text

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