Target versus budget reverse auctions: an online experiment using the strategy method

Adrien Coiffard (), Raphaële Préget () and Mabel Tidball ()
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Adrien Coiffard: CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier
Raphaële Préget: CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier
Mabel Tidball: CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier

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Abstract: Reverse auctions are used in various fields by public or corporate buyers to purchase goods and services from multiple sellers at the best price. Unlike in selling auctions, in reverse auctions a budget constraint rather than a target quantity is often announced by the auctioneer. However, in auction theory no optimal bidding strategy has yet been found in the case when a budget constraint is announced. Here we compare the two auction formats in an online experiment with 329 participants. We use the strategy method to obtain participants' bidding strategies from which we run exhaustive simulations of auction outcomes. This innovative methodology allows to overcome the issue of randomness of the auction outcome related to bidders' values. When each bidder has a single unit to sell, from the buyer's perspective, we find that, on average, the budget-constrained auction format outperforms the target-constrained auction format.

Keywords: Reverse auctions; Online experiments; Strategy Method; Budget constraint; Target constraint. (search for similar items in EconPapers)
Date: 2023-04-03
New Economics Papers: this item is included in nep-des, nep-exp and nep-gth
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