Indicative bidding: An experimental analysis

John Kagel, Svetlana Pevnitskaya and Lixin Ye ()

Games and Economic Behavior, 2008, vol. 62, issue 2, 697-721

Abstract: Indicative bidding is a practice commonly used in sales of complex and very expensive assets. Theoretical analysis shows that efficient entry is not guaranteed under indicative bidding, since there is no equilibrium in which more qualified bidders are more likely to be selected for the final sale. Furthermore, there exist alternative bid procedures that, in theory at least, guarantee 100% efficiency and higher revenue for the seller. We employ experiments to compare actual performance between indicative bidding and one of these alternative procedures. The data shows that indicative bidding performs as well as the alternative procedure in terms of entry efficiency, while having other characteristics that favor it over the alternative procedure. Our results provide an explanation for the widespread use of indicative bidding despite the potential problem identified in the equilibrium analysis.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899-8256(07)00097-8
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:62:y:2008:i:2:p:697-721

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().