An Experimental Study of Bidding Behavior in Subcontract Auctions
AbstractIt is commonly observed in practices that prime contractors solicit subcontract bids, prior to submitting their bids in procurement auctions: the auctioneers in subcontract auctions will become bidders in a procurement auction. This point is remarkably different from the standard theory of procurement auction. We presented a simple model of such subcontract auctions and conducted a laboratory experiment to examine the bidding behavior derived theoretically. We observed that in the subcontract auction, (1) subjects bid following the equilibrium bidding function derived theoretically, (2) the revenue equivalence between first-price and second-price mechanisms breaks down, and (3) the first-price mechanism more likely achieves ex post efficient allocations than the second-price mechanism.
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Bibliographic InfoPaper provided by Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba in its series Tsukuba Economics Working Papers with number 2010-009.
Date of creation: Dec 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-03 (All new papers)
- NEP-EXP-2011-01-03 (Experimental Economics)
- NEP-GTH-2011-01-03 (Game Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hong, Chew Soo & Nishimura, Naoko, 2003. "Revenue non-equivalence between the English and the second-price auctions: experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 51(4), pages 443-458, August.
- Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2000.
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Virginia Economics Online Papers
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- Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2002. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Journal of Economic Theory, Elsevier, vol. 104(1), pages 247-272, May.
- Palfrey, Thomas R. & Goeree, Jacob & Holt, Charles, 2000. "Quantal Response Equilibrium and Overbidding in Private-value Auctions," Working Papers 1073, California Institute of Technology, Division of the Humanities and Social Sciences.
- In Lee, 1999. "Non-cooperative Tacit Collusion, Complementary Bidding and Incumbency Premium," Review of Industrial Organization, Springer, vol. 15(2), pages 115-134, September.
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