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Procurement and Information Feedback

  • Dufwenberg, Martin

    ()

    (Dept. of Economics, Stockholm University)

  • Gneezy, Uri

    ()

    (Haifa University)

A government that regularly procures the services of construction companies wants to minimize its costs. The instrument it can use is the level of information feedback given to the firms in the market. Theoretically, the competition between firms is supposed to drive prices to the lowest possibility, independently of the information feedback. We design an experiment in which firms participate in a first price sealed-bid auction. Interaction takes place in 10 periods according to a random matching mechanism, and we control for the level of information feedback firms receive after each period. It turns out that when firms are informed about the losing bids in previous periods, prices are higher than the theoretical prediction. However, when firms do not receive this information prices converge towards the theoretical prediction. We suggest that aphenomenon of price signaling may be important for explaining these results.

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Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2000:2.

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Length: 23 pages
Date of creation: 20 Dec 1999
Date of revision:
Handle: RePEc:hhs:sunrpe:2000_0002
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  1. Hoggatt, Austin C & Friedman, James W & Gill, Shlomo, 1976. "Price Signaling in Experimental Oligopoly," American Economic Review, American Economic Association, vol. 66(2), pages 261-66, May.
  2. Jean-Jaques Laffont & Jean Tirole, 1985. "Auctioning Incentive Contracts," Working papers 403, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. D. B. Bernheim, 2010. "Rationalizable Strategic Behavior," Levine's Working Paper Archive 514, David K. Levine.
  4. James W. Friedman, 1965. "An Experimental Study of Cooperative Duopoly," Cowles Foundation Discussion Papers 192, Cowles Foundation for Research in Economics, Yale University.
  5. Plott, Charles R., . "Industrial Organization Theory and Experimental Economics," Working Papers 405, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Cason, Timothy N., 1995. "Cheap talk price signaling in laboratory markets," Information Economics and Policy, Elsevier, vol. 7(2), pages 183-204, June.
  7. Matthew Jackson & Ehud Kalai, 1995. "Social Learning in Recurring Games," Discussion Papers 1138, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Charles F. Mason & Owen R. Phillips, 1997. "Information And Cost Asymmetry In Experimental Duopoly Markets," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 290-299, May.
  9. Grether, David M. & Plott, Charles R., . "The Effects of Market Practices in Oligopolistic Markets: An Experimental Examination of the Ethyl Case," Working Papers 404, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. Pearce, David G, 1984. "Rationalizable Strategic Behavior and the Problem of Perfection," Econometrica, Econometric Society, vol. 52(4), pages 1029-50, July.
  11. Thomas G. McGuire & Michael H. Riordan, 1991. "Incomplete Information and Optimal Market Structure: Public Purchases from Private Providers," Papers 0010, Boston University - Industry Studies Programme.
  12. C. Monica Capra, 1999. "Anomalous Behavior in a Traveler's Dilemma?," American Economic Review, American Economic Association, vol. 89(3), pages 678-690, June.
  13. Luton, Richard & McAfee, R. Preston, 1986. "Sequential procurement auctions," Journal of Public Economics, Elsevier, vol. 31(2), pages 181-195, November.
  14. Cason, T.N., 1992. "The Impact of Information Sharing Opportunities on Market Outcomes: An Experimental Study," Papers 9303, Southern California - Department of Economics.
  15. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-26, December.
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