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Designed to Fail: The Medicare Auction for Durable Medical Equipment

Peter Cramton ()

Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton

Abstract: We examine the theoretical properties of the auction for Medicare Durable Medical Equipment. Two unusual features of the Medicare auction are 1) bids are non-binding and 2) winners are paid the median winning bid. These two features lead to complete market failure. Lowball bids result in a price that is below each bidder’s cost, so no quantity is supplied. In sharp contrast, the standard clearing-price auction has each bidder bid true costs as a dominant strategy, resulting in competitive equilibrium prices and full efficiency. Recent Caltech experiments (Merlob, Plott, and Zhang 2012) confirm these theoretical findings.

Keywords: Medicare auctions; health care auctions; procurement auctions (search for similar items in EconPapers)
JEL-codes: D44 I18 (search for similar items in EconPapers)
Pages: pages
Date: 2012, Revised 2012
New Economics Papers: this item is included in nep-hea
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Published in Working Paper, University of Maryland, August 2012

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Journal Article: DESIGNED TO FAIL: THE MEDICARE AUCTION FOR DURABLE MEDICAL EQUIPMENT (2015) Downloads
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