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Procuring Commodities: First Price Sealed Bid or English Auction?

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  • Jason Shachat

Abstract

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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  • Jason Shachat, 2013. "Procuring Commodities: First Price Sealed Bid or English Auction?," Working Papers 2013-10-14, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    • Handle: RePEc:wyi:wpaper:002025
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    5. Serafin J. Grundl & Yu Zhu, 2019. "Robust Inference in First-Price Auctions : Experimental Findings as Identifying Restrictions," Finance and Economics Discussion Series 2019-006, Board of Governors of the Federal Reserve System (U.S.).
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    10. Brisset, Karine & Cochard, François & Le Gallo, Julie, 2015. "Secret versus public reserve price in an “outcry” English procurement auction: Experimental results," International Journal of Production Economics, Elsevier, vol. 169(C), pages 285-298.
    11. Grundl, Serafin & Zhu, Yu, 2023. "Robust inference in first-price auctions: Overbidding as an identifying restriction," Journal of Econometrics, Elsevier, vol. 235(2), pages 484-506.
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