Auctions vs. negotiations: The role of communication in an experiment with procurement managers

Nicolas Fugger, Philippe Gillen, Vitali Gretschko, Gian-Marco Kokott and Tobias Riehm

No 25-039, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We investigate how buyer-supplier communication affects procurement prices, comparing auctions without direct communication to negotiations allowing it. In controlled experiments involving students and procurement professionals, we find communication increases prices, disadvantaging buyers. Negotiation analyses show lower initial offers, negotiation-focused dialogue, and emphasizing competition help reduce prices. Contrary to conventional wisdom, auctions without communication often yield better procurement outcomes, especially in competitive markets. Our results suggest managers should reconsider assumptions about experienced negotiators achieving superior deals and instead favor procurement auctions with limited communication to secure lower prices.

Keywords: Auctions; Negotiations; Procurement; Experiment (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-com and nep-des
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:327107

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