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 auctioneer'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 buyers' subjective posteriors regarding the winners' 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 can't explain these price dependencies.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 42409.
Date of creation: 17 Oct 2012
Date of revision:
Auction; Bargaining; Experiment; Subjective Posterior;
Other versions of this item:
- Jason Shachat & Lijia Tan, 2012. "An experimental investigation of auctions and bargaining in procurement," Working Papers 1203, Xiamen Unversity, The Wang Yanan Institute for Studies in Economics, Finance and Economics Experimental Laboratory, revised 17 Oct 2012.
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
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