Procurement Auctions with Avoidable Fixed Costs: An Experimental Approach
51 Pages Posted: 26 Nov 2008 Last revised: 11 Jul 2011
Date Written: January 11, 2011
Abstract
Bidders in procurement auctions often face avoidable fixed costs. This can make bidding decisions complex and risky, and market outcomes volatile. If bidders deviate from risk neutral best responses, either due to faulty optimization or risk attitudes, then equilibrium predictions can perform poorly. In this paper, we confront laboratory bidders with three auction formats that make bidding difficult and risky in different ways. Wefind that measures of `difficulty' provide a consistent explanation of deviations from best response bidding across the three formats. In contrast, risk and loss preferences cannot explain behavior across all three formats.
Keywords: Auctions, Experimental, Procurement, Synergies, Asymmetric Bidders
JEL Classification: D44, D43, L13, M21
Suggested Citation: Suggested Citation