An experimental comparison of sequential first- and second-price auctions with synergies
AbstractThe presence of synergies in recurrent procurement auctions leads to an exposure problem and asymmetries among bidders. We consider sequential first- and second-price auctions with synergies in a setting with four bidders. In a series of experiments we compare the performance of the two pricing formats for three different sizes of the synergy. We find that for small synergies, the first-price auction performs better in terms of efficiency, revenue, and the probability on losses. However, once the synergy factor becomes very large the performance of the two different pricing formats becomes more similar. We also find that even though the potential total surplus that can be divided between buyers and seller increases in the synergy factor, subjects’ earnings within a pricing rule do not significantly change in the synergy factor. Finally, we observe that the two pricing formats give rise to different price trends within the auction sequence. In general, our results provide support for the common use of first-price instead of second-price auctions for public procurement.
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Date of creation: 2007
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Other versions of this item:
- Leufkens Kasper & Peeters Ronald & Vorsatz Marc, 2012. "An Experimental Comparison of Sequential First- and Second-Price Auctions with Synergies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-28, January.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-02 (All new papers)
- NEP-EXP-2008-02-02 (Experimental Economics)
- NEP-GTH-2008-02-02 (Game Theory)
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