An experimental investigation of auctions and bargaining in procurement
AbstractIn reverse auctions, buyers often retain the right to bargain further concessions from the winner. The optimal form of such procurement is an English auction followed by an auctioneerâ€™s option to engage in ultimatum bargaining with the winner. We study behavior and performance in this procurement format using a laboratory experiment. Sellers closely follow the equilibrium strategy of exiting the auction at their costs and then accepting strictly profitable offers. Buyers generally exercise their option to bargain according to their equilibrium strategy, but their take-it-or-leave-it offers vary positively with auction prices when they should be invariant. We explain this deviation by modeling buyersâ€™ subjective posteriors regarding the winnersâ€™ costs as distortions, calculated using a formulation of probability weighting, of the Bayesian posteriors. We show alternative models based upon risk aversion and anticipated regret canâ€™t explain these price dependencies.
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Bibliographic InfoPaper provided by Xiamen Unversity, The Wang Yanan Institute for Studies in Economics, Finance and Economics Experimental Laboratory in its series Working Papers with number 1203.
Length: 28 pages
Date of creation: 17 Oct 2012
Date of revision: 17 Oct 2012
Auction; Bargaining; Experiment; Subjective Posterior;
Other versions of this item:
- Shachat, Jason & Tan, Lijia, 2012. "An experimental investigation of auctions and bargaining in procurement," MPRA Paper 42409, University Library of Munich, Germany.
- C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
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