Sophisticated Bidders In Beauty-Contest Auctions

Stefano Galavotti (), Luigi Moretti and Paola Valbonesi

No 187, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: In this paper, we study bidding behavior by firms in beauty-contest auctions, i.e. auctions in which the winning bid is the one which gets closest to some function (average) of all submitted bids. Using a dataset on public procurement beauty-contest auctions in Italy and exploiting a change in the auction format, we show that firmsÕ observed bidding behavior departs from equilibrium and can be predicted by an index of sophistication, which captures the firmsÕ accumulated capacity of bidding well (i.e., close to optimality) in the past. We show that our empirical evidence is consistent with a Cognitive Hierarchy model of biddersÕ behavior. We also investigate whether and how firms learn to think and bid strategically through experience.

Keywords: cognitive hierarchy; auctions; beauty-contest; public procurement. (search for similar items in EconPapers)
JEL-codes: C70 D03 D44 D83 H57 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014-09
New Economics Papers: this item is included in nep-exp and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Sophisticated Bidders in Beauty-Contest Auctions (2018)
Working Paper: Sophisticated Bidders in Beauty-Contest Auctions (2018)
Working Paper: Sophisticated Bidders in Beauty-Contest Auctions (2018)
Working Paper: Sophisticated Bidders in Beauty-Contest Auctons (2017)
Working Paper: Sophisticated Bidders in Beauty-Contest Auctons (2017)
Working Paper: Sophisticated Bidders in Beauty-Contest Auctions (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0187

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