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Procuring Commodities: Request for Quote or Reverse Auctions?

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  • Shachat, Jason

Abstract

We examine the relative performances of reverse auctions and request for quotes in a simple commodity environment. Enterprises embarking on a reverse auction initiative often start with their commodity purchases. We conduct laboratory experiments and find that this is a poor starting point. Both the mean and variance of prices when sourcing through reverse auctions. With respect to the general investigation of auctions, the request for quote is the mirror image of a first price sealed bid auction and has the same symmetric Nash equilibrium. However, the request for quote allows identification of simple behavioral rules such as always bidding a percentage of your signal, which is indistinct from Nash equilibrium strategies in the sell auction counterpart. Consequently we estimate that one-fourth of the subjects follow a simple mark-up rule and approximately two-thirds follow a strategic Nash equilibrium strategy.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13418.

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Date of creation: 08 Feb 2009
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Handle: RePEc:pra:mprapa:13418

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Keywords: Procurement; Auction; Experiment;

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References

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  1. James T. Swarthout & Jason Shachat, 2004. "Procurement Auctions for Differentiated Goods," Econometric Society 2004 Far Eastern Meetings 629, Econometric Society.
  2. Sandy D. Jap & Prasad A. Naik, 2008. "BidAnalyzer: A Method for Estimation and Selection of Dynamic Bidding Models," Marketing Science, INFORMS, vol. 27(6), pages 949-960, 11-12.
  3. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  4. Coppinger, Vicki M & Smith, Vernon L & Titus, Jon A, 1980. "Incentives and Behavior in English, Dutch and Sealed-Bid Auctions," Economic Inquiry, Western Economic Association International, vol. 18(1), pages 1-22, January.
  5. repec:wop:humbsf:2000-72 is not listed on IDEAS
  6. David C. Parkes & Jayant Kalagnanam, 2005. "Models for Iterative Multiattribute Procurement Auctions," Management Science, INFORMS, vol. 51(3), pages 435-451, March.
  7. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Emel Filiz-Ozbay & Erkut Y. Ozbay, 2007. "Auctions with Anticipated Regret: Theory and Experiment," American Economic Review, American Economic Association, vol. 97(4), pages 1407-1418, September.
  9. Ledyard, John O., . "The Scope of the Hypothesis of Bayesian Equilibrium," Working Papers 532, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. Neugebauer, Tibor & Selten, Reinhard, 2006. "Individual behavior of first-price auctions: The importance of information feedback in computerized experimental markets," Games and Economic Behavior, Elsevier, vol. 54(1), pages 183-204, January.
  11. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  12. Cantillon, Estelle, 2008. "The effect of bidders' asymmetries on expected revenue in auctions," Games and Economic Behavior, Elsevier, vol. 62(1), pages 1-25, January.
  13. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-45, June.
  14. John R. Graham & Campbell R. Harvey & Shiva Rajgopal, 2004. "The Economic Implications of Corporate Financial Reporting," NBER Working Papers 10550, National Bureau of Economic Research, Inc.
  15. Ching-Hua Chen-Ritzo & Terry P. Harrison & Anthony M. Kwasnica & Douglas J. Thomas, 2005. "Better, Faster, Cheaper: An Experimental Analysis of a Multiattribute Reverse Auction Mechanism with Restricted Information Feedback," Management Science, INFORMS, vol. 51(12), pages 1753-1762, December.
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Citations

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Cited by:
  1. Karine Brisset & François Cochard & François Maréchal, 2012. "The Value of a Right of First Refusal Clause in a Procurement First-Price Auction," Working Papers 2012-03, CRESE.
  2. repec:fee:wpaper:1203 is not listed on IDEAS
  3. Shachat, Jason & Tan, Lijia, 2012. "An experimental investigation of auctions and bargaining in procurement," MPRA Paper 42409, University Library of Munich, Germany.

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