An Experimental Study of Bidding Behavior in Subcontract Auctions
It is commonly observed in practices that prime contractors solicit subcontract bids, prior to submitting their bids in procurement auctions: the auctioneers in subcontract auctions will become bidders in a procurement auction. This point is remarkably different from the standard theory of procurement auction. We presented a simple model of such subcontract auctions and conducted a laboratory experiment to examine the bidding behavior derived theoretically. We observed that in the subcontract auction, (1) subjects bid following the equilibrium bidding function derived theoretically, (2) the revenue equivalence between first-price and second-price mechanisms breaks down, and (3) the first-price mechanism more likely achieves ex post efficient allocations than the second-price mechanism.
|Date of creation:||Dec 2010|
|Date of revision:|
|Contact details of provider:|| Postal: 1-1-1 Tennodai, Tsukuba, Ibaraki 305-8571|
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- Palfrey, Thomas R. & Goeree, Jacob & Holt, Charles, 2000.
"Quantal Response Equilibrium and Overbidding in Private-value Auctions,"
1073, California Institute of Technology, Division of the Humanities and Social Sciences.
- Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2002. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Journal of Economic Theory, Elsevier, vol. 104(1), pages 247-272, May.
- Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2000. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Virginia Economics Online Papers 345, University of Virginia, Department of Economics.
- Cox, James C. & Smith, Vernon L. & Walker, James M., 1982. "Auction market theory of heterogeneous bidders," Economics Letters, Elsevier, vol. 9(4), pages 319-325.
- Hong, Chew Soo & Nishimura, Naoko, 2003. "Revenue non-equivalence between the English and the second-price auctions: experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 51(4), pages 443-458, August.
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