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Procuring Commodities: Request for Quote or Reverse Auctions?


  • Shachat, Jason


We examine the relative performances of reverse auctions and request for quotes in a simple commodity environment. Enterprises embarking on a reverse auction initiative often start with their commodity purchases. We conduct laboratory experiments and find that this is a poor starting point. Both the mean and variance of prices when sourcing through reverse auctions. With respect to the general investigation of auctions, the request for quote is the mirror image of a first price sealed bid auction and has the same symmetric Nash equilibrium. However, the request for quote allows identification of simple behavioral rules such as always bidding a percentage of your signal, which is indistinct from Nash equilibrium strategies in the sell auction counterpart. Consequently we estimate that one-fourth of the subjects follow a simple mark-up rule and approximately two-thirds follow a strategic Nash equilibrium strategy.

Suggested Citation

  • Shachat, Jason, 2009. "Procuring Commodities: Request for Quote or Reverse Auctions?," MPRA Paper 13418, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13418

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    References listed on IDEAS

    1. Ledyard, John O., 1986. "The scope of the hypothesis of Bayesian equilibrium," Journal of Economic Theory, Elsevier, vol. 39(1), pages 59-82, June.
    2. Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2005. "The economic implications of corporate financial reporting," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 3-73, December.
    3. Eric Maskin & John Riley, 2000. "Asymmetric Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 413-438.
    4. Coppinger, Vicki M & Smith, Vernon L & Titus, Jon A, 1980. "Incentives and Behavior in English, Dutch and Sealed-Bid Auctions," Economic Inquiry, Western Economic Association International, vol. 18(1), pages 1-22, January.
    5. David C. Parkes & Jayant Kalagnanam, 2005. "Models for Iterative Multiattribute Procurement Auctions," Management Science, INFORMS, vol. 51(3), pages 435-451, March.
    6. Cantillon, Estelle, 2008. "The effect of bidders' asymmetries on expected revenue in auctions," Games and Economic Behavior, Elsevier, vol. 62(1), pages 1-25, January.
    7. Ching-Hua Chen-Ritzo & Terry P. Harrison & Anthony M. Kwasnica & Douglas J. Thomas, 2005. "Better, Faster, Cheaper: An Experimental Analysis of a Multiattribute Reverse Auction Mechanism with Restricted Information Feedback," Management Science, INFORMS, vol. 51(12), pages 1753-1762, December.
    8. Jason Shachat & J. Todd Swarthout, 2010. "Procurement Auctions for Differentiated Goods," Decision Analysis, INFORMS, vol. 7(1), pages 6-22, March.
    9. Sandy D. Jap & Prasad A. Naik, 2008. "BidAnalyzer: A Method for Estimation and Selection of Dynamic Bidding Models," Marketing Science, INFORMS, vol. 27(6), pages 949-960, 11-12.
    10. Neugebauer, Tibor & Selten, Reinhard, 2006. "Individual behavior of first-price auctions: The importance of information feedback in computerized experimental markets," Games and Economic Behavior, Elsevier, vol. 54(1), pages 183-204, January.
    11. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    12. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    13. Emel Filiz-Ozbay & Erkut Y. Ozbay, 2007. "Auctions with Anticipated Regret: Theory and Experiment," American Economic Review, American Economic Association, vol. 97(4), pages 1407-1418, September.
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    Cited by:

    1. Jason Shachat & Lijia Tan, 2015. "An Experimental Investigation of Auctions and Bargaining in Procurement," Management Science, INFORMS, vol. 61(5), pages 1036-1051, May.
    2. Karine Brisset & François Cochard & François Maréchal, 2012. "The Value of a Right of First Refusal Clause in a Procurement First-Price Auction," Working Papers 2012-03, CRESE.

    More about this item


    Procurement; Auction; Experiment;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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