Procuring Commodities: First-Price Sealed-Bid or English Auctions?

Jason Shachat and Lijia Wei

Marketing Science, 2012, vol. 31, issue 2, 317-333

Abstract: We use laboratory experiments to examine the relative performance of the English auction (EA) and the first-price sealed-bid auction (FPA) when procuring a commodity. The mean and variance of prices are lower in the FPA than in the EA. Bids and prices in the EA agree with game-theoretic predictions, but they do not agree in the FPA. To resolve these deviations found in the FPA, we introduce a mixture model with three bidding rules: constant absolute markup, constant percentage markup, and strategic best response. A dynamic specification in which bidders can switch strategies as they gain experience is estimated as a hidden Markov model. Initially, about three quarters of the subjects are strategic bidders, but over time, the number of strategic bidders falls to below 65%. There is a corresponding growth in those who use the constant absolute markup rule.

Keywords: procurement auction; experiment; hidden Markov model; decision rules of thumb (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Procuring Commodities: First Price Sealed Bid or English Auction? (2013)
Working Paper: Procuring Commodities: First Price Sealed Bid or English Auction? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:31:y:2012:i:2:p:317-333

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