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Procurement design with loss averse bidders

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  • Fugger, Nicolas
  • Gillen, Philippe
  • Riehm, Tobias

Abstract

We show that it is beneficial for a buyer to conduct a multi-stage mechanism if bidders are loss averse. In a first step, we derive a revenue equivalence principle. Fixing the multi-stage structure, the revenue is independent of the chosen payment rule. Secondly, we introduce a simple two-stage mechanism which always leads to a decrease in procurement costs compared to any single-stage auction. Finally we derive the optimal efficient two-stage mechanism.

Suggested Citation

  • Fugger, Nicolas & Gillen, Philippe & Riehm, Tobias, 2019. "Procurement design with loss averse bidders," ZEW Discussion Papers 19-060, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:19060
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Auctions; Experiment; Loss aversion; Preferences;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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