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Procurement auctions with avoidable fixed costs: an experimental approach

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  • Larson, Nathan
  • Elmaghraby, Wedad

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.

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File URL: http://mpra.ub.uni-muenchen.de/32163/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32163.

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Date of creation: 2008
Date of revision: 2011
Handle: RePEc:pra:mprapa:32163

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Related research

Keywords: Auctions; Experimental; Procurement; Synergies; Asymmetric Bidders; Learning; Optimization errors;

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References

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  1. Peter Cramton, 1998. "Ascending Auctions," Papers of Peter Cramton 98eer, University of Maryland, Department of Economics - Peter Cramton, revised 28 Jul 1998.
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