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An Experimental Study on Sequential Auctions with Privately Known Capacities

Author

Listed:
  • Luca Corrazzini

    () (Department of Economics, University Of Venice Cà Foscari; ISLA, Bocconi University, Milan)

  • Stefano Galavotti

    () (Department of Economics and Management, University of Padua)

  • Paola Valbonesi

    (University of Padua; National Research University Higher School of Economics, Moscow and Perm)

Abstract

We experimentally study bidding behavior in sequential first-price procurement auctions where bidders’ capacity constraints are private information. Treatment differs in the ex-ante probability distribution of sellers’ capacities and in the (exogenous) probability that the second auction is actually implemented. Our results show that: (i) bidding behavior in the second auction conforms with sequential rationality; (ii) while first auction’s bids negatively depend on capacity, bidders seem unable to recognize this link when, at the end of the first auction, they state their beliefs on the opponent’s capacity. To rationalize this inconsistency between bids and beliefs, we conjecture that bidding in the first auction is also affected by a hidden, behavioral type – related to the strategic sophistication of bidders – that obfuscates the link between capacity and bids. Building on this intuition, we show that a simple level-k model may help explain the inconsistency.

Suggested Citation

  • Luca Corrazzini & Stefano Galavotti & Paola Valbonesi, 2017. "An Experimental Study on Sequential Auctions with Privately Known Capacities," Working Papers 2017:30, Department of Economics, University of Venice "Ca' Foscari".
  • Handle: RePEc:ven:wpaper:2017:30
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    More about this item

    Keywords

    Sequential auctions; capacity constraints; belief inconsistency;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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