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Procurement auctions with avoidable fixed costs: an experimental approach

Nathan Larson and Wedad Elmaghraby

MPRA Paper from University Library of Munich, Germany

Abstract: Bidders in procurement auctions often face avoidable fixed costs. This can make bidding decisions complex and risky, and market outcomes volatile. If bidders deviate from risk neutral best responses, either due to faulty optimization or risk attitudes, then equilibrium predictions can perform poorly. In this paper, we confront laboratory bidders with three auction formats that make bidding difficult and risky in different ways. We find that measures of `difficulty' provide a consistent explanation of deviations from best response bidding across the three formats. In contrast, risk and loss preferences cannot explain behavior across all three formats.

Keywords: Auctions; Experimental; Procurement; Synergies; Asymmetric Bidders; Learning; Optimization errors (search for similar items in EconPapers)
JEL-codes: D44 D81 D83 (search for similar items in EconPapers)
Date: 2008, Revised 2011
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