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A Multinomial Logit Framework to Estimate Bid Shading in Procurement Auctions: Application to Cattle Sales in the Texas Panhandle

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  • John Crespi

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  • Richard Sexton

Abstract

We develop an empirical methodology based upon multinomial probability models to estimate the magnitude of bid shading in cattle procurement in the Texas Panhandle region. The methodology works well in settings where data allow a good estimation of a bidder’s probability of winning, but the approach does not rely upon the bidding process following any particular structural framework or on the existence of a control group. Estimated markdowns of price from the competitive level are in the range of 5–10% and are somewhat larger than estimates of oligopsony markdowns from previous studies of cattle procurement in the U.S. Copyright Springer 2005

Suggested Citation

  • John Crespi & Richard Sexton, 2005. "A Multinomial Logit Framework to Estimate Bid Shading in Procurement Auctions: Application to Cattle Sales in the Texas Panhandle," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 27(3), pages 253-278, November.
  • Handle: RePEc:kap:revind:v:27:y:2005:i:3:p:253-278
    DOI: 10.1007/s11151-005-1755-5
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    References listed on IDEAS

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    1. Schroeter, John R. & Azzam, Azzeddine M., 1999. "Econometric Analysis of Fed Cattle Procurement in the Texas Panhandle," Staff General Research Papers Archive 11365, Iowa State University, Department of Economics.
    2. Lynn Hunnicutt & DeeVon Bailey & Michelle Crook, 2002. "Measuring Market Power with Variables Other than Price," Working Papers 2002-08, Utah State University, Department of Economics.
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    Cited by:

    1. Adjemian, Michael & Brorsen, B. Wade & Hahn, William & Saitone, Tina L. & Sexton, Richard J., 2016. "Thinning Markets in U.S. Agriculture," Economic Information Bulletin 232928, United States Department of Agriculture, Economic Research Service.
    2. David E. Davis, 2012. "Bidding for WIC Infant Formula Contracts: Do Non-WIC Customers Subsidize WIC Customers?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 80-96.
    3. Ward, Clement E., 2007. "Feedlot and Packer Pricing Behavior: Implications for Competition Research," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 7365, Western Agricultural Economics Association.
    4. David Davis, 2014. "Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(2), pages 121-138, September.
    5. Crespi, John M. & Xia, Tian & Jones, Rodney D., 2008. "Competition, Bargaining Power, and the Cattle Cycle," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6263, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Lee, Yoonsuk & Ward, Clement E. & Brorsen, B. Wade, 2010. "Relationships among Prices across Alternative Marketing Arrangements for Fed Cattle and Hogs," 2010 Annual Meeting, February 6-9, 2010, Orlando, Florida 56282, Southern Agricultural Economics Association.

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