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An Experimental Study of Bidding Behavior in Subcontract Auctions

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  • Jun Nakabayashi
  • Naoki Watanabe

Abstract

It 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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File URL: http://www.econ.tsukuba.ac.jp/RePEc/2010-009.pdf
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Bibliographic Info

Paper provided by Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba in its series Tsukuba Economics Working Papers with number 2010-009.

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Date of creation: Dec 2010
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Handle: RePEc:tsu:tewpjp:2010-009

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Postal: 1-1-1 Tennodai, Tsukuba, Ibaraki 305-8571
Web page: http://www.econ.tsukuba.ac.jp/
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  1. 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.
  2. Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2000. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Virginia Economics Online Papers 345, University of Virginia, Department of Economics.
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Cited by:
  1. 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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