Procurement design with loss averse bidders

Nicolas Fugger, Philippe Gillen and Tobias Riehm

No 19-060, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We show that it is beneficial for a buyer to conduct a multi-stage mechanism if bidders are loss averse. In a first step, we derive a revenue equivalence principle. Fixing the multi-stage structure, the revenue is independent of the chosen payment rule. Secondly, we introduce a simple two-stage mechanism which always leads to a decrease in procurement costs compared to any single-stage auction. Finally we derive the optimal efficient two-stage mechanism.

Keywords: Auctions; Experiment; Loss aversion; Preferences (search for similar items in EconPapers)
JEL-codes: D44 D47 D90 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-des, nep-mic, nep-ore and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:19060

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