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Procuring Commodities: First Price Sealed Bid or English Auction?

  • Jason Shachat

    ()

    (Wang Yanan Institute for Studies in Economics, Xiamen University)

I use laboratory experiments to examine the relative performance of the English auction (EA) and the first price sealed bid auction (FPA) when procuring a commodity. The mean and variance of prices are lower in the FPA than in the EA. Bids and prices in EA agree with game theoretic predictions while they don’t in the FPA. To resolve these deviations found in the FPA, I consider a mixture model with three bidding rules: constant absolute mark-up, constant percentage mark-up, and strategic best response. A dynamic specification is estimated as a hidden Markov model. Initially about three quarters of the subjects are strategic bidders, but over time the number of strategic bidders falls to below sixty-five percent. There is a corresponding growth in those who bid a constant absolute mark-up above realized cost. This model provides an explanation of the dynamics of the mean and variance of price.

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File URL: http://feel.xmu.edu.cn/RePEc/wpaper/Procuring_Commodities.pdf
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Paper provided by Xiamen Unversity, The Wang Yanan Institute for Studies in Economics, Finance and Economics Experimental Laboratory in its series Working Papers with number 0901.

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Length: 31 pages
Date of creation: 08 Feb 2009
Date of revision: 26 Apr 2010
Handle: RePEc:fee:wpaper:0901
Contact details of provider: Phone: 86-592-2180855
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Web page: http://feel.xmu.edu.cn
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