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Procurement Auctions for Differentiated Goods

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  • Jason Shachat

    (National University of Singapore)

  • J. Todd Swarthout

    (University of Arizona)

Abstract

We consider two mechanisms to procure differentiated goods: a request for quote and an English auction with bidding credits. In the request for quote, each seller submits a price and the inherent quality of his good. Then the buyer selects the seller who offers the greatest difference in quality and price. In the English auction with bidding credits, the buyer assigns a bidding credit to each seller conditional upon the quality of the seller’s good. Then the sellers compete in an English auction with the winner receiving the auction price and his bidding credit. Game theoretic models predict the request for quote is socially efficient but the English auction with bidding credits is not. The optimal bidding credit assignment under compensates for quality advantages, creating a market distortion in which the buyer captures surplus at the expense of the seller’s profit and social efficiency. In experiments, the request for quote is less efficient than the English auctions with bidding credits. Moreover, both the buyer and seller receive more surplus in the English auction with bidding credits.

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Paper provided by EconWPA in its series Experimental with number 0310004.

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Length: 33 pages
Date of creation: 13 Oct 2003
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Handle: RePEc:wpa:wuwpex:0310004

Note: Type of Document - pdf; pages: 33
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Web page: http://128.118.178.162

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  1. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-93, May.
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  3. Richard L. Fullerton & Bruce G. Linster & Michael McKee & Stephen Slate, 2002. "Using Auctions To Reward Tournament Winners: Theory and Experimental Investigations," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 62-84, Spring.
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  8. Dasgupta, Sudipto & Spulber, Daniel F., 1989. "Managing procurement auctions," Information Economics and Policy, Elsevier, vol. 4(1), pages 5-29.
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Cited by:
  1. Chen, Songlin & Tseng, Mitchell M., 2010. "A Negotiation-Credit-Auction mechanism for procuring customized products," International Journal of Production Economics, Elsevier, vol. 127(1), pages 203-210, September.
  2. Isaac, R. Mark & Salmon, Timothy C. & Zillante, Arthur, 2007. "A theory of jump bidding in ascending auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 62(1), pages 144-164, January.
  3. He, Haoran & Chen, Yefeng & Last Name, First Name, 2014. "Auction Mechanisms for Allocating Subsidies for Carbon Emissions Reduction: An Experimental Investigation," Discussion Papers dp-14-06-efd, Resources For the Future.
  4. Mark Isaac & Svetlana Pevnitskaya & Tim C. Salmon, 2008. "Individual Behavior In Auctions with Price Proportional Benefits," Working Papers wp2008_07_01, Department of Economics, Florida State University.
  5. Shu-Heng Chen & Chung-Ching Tai, 2006. "Republication: On the Selection of Adaptive Algorithms in ABM: A Computational-Equivalence Approach," Computational Economics, Society for Computational Economics, vol. 28(4), pages 313-331, November.
  6. Jeanette Brosig & Timo Heinrich, 2011. "Reputation and Mechanism Choice in Procurement Auctions – An Experiment," Ruhr Economic Papers 0254, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  7. Shachat, Jason, 2009. "Procuring Commodities: Request for Quote or Reverse Auctions?," MPRA Paper 13418, University Library of Munich, Germany.
  8. Nicola Doni, 2007. "A Comparison of Alternative Procedures for the Selection of the Private Partner in PPP Projects," Working Papers - Economics wp2007_10, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  9. Shu-Heng Chen & Chung-Ching Tai, 2006. "On the Selection of Adaptive Algorithms in ABM: A Computational-Equivalence Approach," Computational Economics, Society for Computational Economics, vol. 28(1), pages 51-69, August.

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