Procurement Auctions for Differentiated Goods
AbstractWe consider two mechanisms to procure differentiated goods: a request for quote and an English auction with bidding credits. In the request for quote, each seller submits a price and the inherent quality of his good. Then the buyer selects the seller who offers the greatest difference in quality and price. In the English auction with bidding credits, the buyer assigns a bidding credit to each seller conditional upon the quality of the sellerâ€™s good. Then the sellers compete in an English auction with the winner receiving the auction price and his bidding credit. Game theoretic models predict the request for quote is socially efficient but the English auction with bidding credits is not. The optimal bidding credit assignment under compensates for quality advantages, creating a market distortion in which the buyer captures surplus at the expense of the sellerâ€™s profit and social efficiency. In experiments, the request for quote is less efficient than the English auctions with bidding credits. Moreover, both the buyer and seller receive more surplus in the English auction with bidding credits
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Date of creation: 11 Aug 2004
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Auctions; Product Differentiation; Experiment;
Other versions of this item:
- Jason Shachat & J. Todd Swarthout, 2003. "Procurement Auctions for Differentiated Goods," Experimental 0310004, EconWPA.
- Jason Shachat & J. Todd Swarthout, 2003. "Procurement Auctions for Differentiated Goods," Experimental Economics Center Working Paper Series 2006-15, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Apr 2009.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-16 (All new papers)
- NEP-COM-2004-08-16 (Industrial Competition)
- NEP-EXP-2004-08-16 (Experimental Economics)
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