More Web Proxy on the site http://driver.im/

article

Procuring Commodities: First-Price Sealed-Bid or English Auctions?

Authors:

Lijia WeiAuthors Info & Claims

Marketing Science, Volume 31, Issue 2

Pages 317 - 333

https://doi.org/10.1287/mksc.1120.0704

Published: 01 March 2012 Publication History

Abstract

We 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 the EA agree with game-theoretic predictions, but they do not agree in the FPA. To resolve these deviations found in the FPA, we introduce a mixture model with three bidding rules: constant absolute markup, constant percentage markup, and strategic best response. A dynamic specification in which bidders can switch strategies as they gain experience 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 65%. There is a corresponding growth in those who use the constant absolute markup rule.

References

[1]

Abbas, A. E. and Hann, I.-H., "Measuring risk aversion in a name-your-own-price channel," Decision Anal., v7, pp. 123-136, 2010.

Digital Library

[2]

Armantier, O. and Treich, N., "Star-shaped probability weighting functions and overbidding in first-price auctions," Econom. Lett., v104, pp. 83-85, 2009a.

[3]

Armantier, O. and Treich, N., "Subjective probabilities in games: An application to the overbidding puzzle," Internat. Econom. Rev., v50, pp. 1079-1102, 2009b.

[4]

Bajari, P. and Hortacsu, A., "Are structural estimates of auction models reasonable? Evidence from experimental data," J. Political Econom., v113, pp. 703-741, 2005.

[5]

Barrett, G. F. and Donald, S. G., "Consistent tests for stochastic dominance," Econometrica, v71, pp. 71-104, 2003.

[6]

Berg, J., Dickhaut, J. and McCabe, K., "Risk preference instability across institutions: A dilemma," Proc. Natl. Acad. Sci. USA, v102, pp. 4209-4214, 2005.

[7]

Bradlow, E. T. and Park, Y.-H., "Bayesian estimation of bid sequences in Internet auctions using a generalized record-breaking model," Marketing Sci., v26, pp. 218-229, 2007.

Digital Library

[8]

Brown, J., Hossain, T. and Morgan, J., "Shrouded attributes and information suppression: Evidence from the field," Quart. J. Econom., v125, pp. 859-876, 2010.

[9]

Camerer, C. F. and Ho, T.-H., "Experience-weighted attraction learning in normal form games," Econometrica, v67, pp. 827-874, 1999.

[10]

Cantillon, E., "The effect of bidders' asymmetries on expected revenue in auctions," Games Econom. Behav., v61, pp. 1-25, 2008.

[11]

Chafkin, M., "Reverse auctions: A supplier's survival guide," Inc., 2007.

[12]

Chan, T. Y., Kadiyali, V. and Park, Y.-H., "Willingness to pay and competition in online auctions," J. Marketing Res., v44, pp. 324-333, 2007.

[13]

Chen, K.-Y. and Plott, C. R., "Nonlinear behavior in sealed bid first price auctions," Games Econom. Behav., v25, pp. 34-78, 1998.

[14]

Chen-Ritzo, C.-H., Harrison, T. P., Kwasnica, A. M. and Thomas, D. J., "Better, faster, cheaper: An experimental analysis of a multiattribute reverse auction mechanism with restricted information feedback," Management Sci., v51, pp. 1753-1762, 2005.

Digital Library

[15]

Coppinger, V. M., Smith, V. L. and Titus, J. A., "Incentives and behavior in English, Dutch, and sealed-bid auctions," Econom. Inquiry, v18, pp. 1-22, 1980.

[16]

Cox, J., Oaxaca, R. L. and Issac, R. M., "Is bidding behavior consistent with bidding theory for private value auctions?," Research in Experimental Economics, vVol. 6, JAI Press, Greenwich, CT, pp. 131-148, 1996.

[17]

Cox, J. C., Roberson, B., Smith, V. L. and Smith, V. L., "Theory and behavior of single object auctions," Research in Experimental Economics, vVol. 2, JAI Press, Greenwich, CT, pp. 537-579, 1982.

[18]

Crawford, V. P. and Iriberri, N., "Level-k auctions: Can a nonequilibrium model of strategic thinking explain the winner's curse and overbidding in private-value auctions?," Econometrica, v75, pp. 1721-1770, 2007.

[19]

Dholakia, U. M. and Simonson, I., "The effect of explicit reference points on consumer choice and online bidding behavior," Marketing Sci., v24, pp. 206-217, 2005.

Digital Library

[20]

Dittrich, D. A. V., Guth, W., Kocher, M. and Pezanis-Christou, P., "Loss aversion and learning to bid," Economica, 2011.

[21]

Elmaghraby, W., "Auctions within e-sourcing events," Production Oper. Management, v16, pp. 409-422, 2007.

[22]

Engelbrecht-Wiggans, R. and Katok, E., "Regret in auctions: Theory and evidence," Econom. Theory, v33, pp. 81-101, 2007.

[23]

Engelbrecht-Wiggans, R. and Katok, E., "Regret and feedback information in first-price sealed-bid auctions," Management Sci., v54, pp. 808-819, 2008.

Digital Library

[24]

Fay, S., "Partial-repeat-bidding in the name-your-own-price channel," Marketing Sci., v23, pp. 407-418, 2004.

Digital Library

[25]

Filiz-Ozbay, E. and Ozbay, E. Y., "Auctions with anticipated regret: Theory and experiment," Amer. Econom. Rev., v97, pp. 1407-1418, 2007.

[26]

Goeree, J., Holt, C. A. and Palfrey, T. R., "Quantal response equilibrium and overbidding in private-value auctions," J. Econom. Theory, v104, pp. 247-272, 2002.

[27]

Guerre, E., Perrigne, I. and Vuong, Q., "Nonparametric identification of risk aversion in first-price auctions under exclusion restrictions," Econometrica, v77, pp. 1193-1227, 2009.

[28]

Guth, W., Ivanova-Stenzel, R., Konigstein, M. and Strobel, M., "Learning to bid---An experimental study of bid function adjustments in auctions and fair division games," Econom. J., v113, pp. 477-494, 2003.

[29]

Haruvy, E. and Katok, E., "An experimental investigation of buyer determined procurement auctions," 2008.

[30]

Hendricks, K. and Porter, R. H., "An empirical study of an auction with asymmetric information," Amer. Econom. Rev., v78, pp. 865-883, 1988.

[31]

Holt, C. A., "Competitive bidding for contracts under alternative auction procedures," J. Political Econom., v88, pp. 433-445, 1980.

[32]

Hossain, T. and Morgan, J., "...Plus shipping and handling: Revenue (non) equivalence in field experiments on eBay," B. E. J. Econom. Anal. Policy, v6, 2006.

[33]

Hui, S. K., Fader, P. S. and Bradlow, E. T., "Path data in marketing: An integrative framework and prospectus for model building," Marketing Sci., v28, pp. 320-335, 2009.

Digital Library

[34]

James, D., Reagle, D., Anderssen, R. S., Braddock, R. D. and Newham, L. T. H., "Experience weighted attraction in the first price auction and Becker Degroot Marschak," 18th World IMACS Congress MODSIM09 Internat. Congress Modelling Simulation, Modelling and Simulation Society of Australia and New Zealand and International Association for Mathematics and Computers in Simulation, pp. 1437-1441, 2009.

[35]

Jap, S. D., "Online reverse auctions: Issues, themes, and prospects for the future," J. Acad. Marketing Sci., v30, pp. 506-525, 2002.

[36]

Jap, S. D., "The impact of online reverse auction design on buyer-supplier relationships," J. Marketing, v71, pp. 146-159, 2007.

[37]

Jap, S. D. and Haruvy, E., "Interorganizational relationships and bidding behavior in industrial online reverse auctions," J. Marketing Res., v45, pp. 550-561, 2008.

[38]

Jap, S. D. and Naik, P. A., "BidAnalyzer: A method for estimation and selection of dynamic bidding models," Marketing Sci., v27, pp. 949-960, 2008.

[39]

Kagel, J. H., Kagel, J. H. and Roth, A. E., "Auctions: A survey of experimental research," The Handbook of Experimental Economics, Princeton University Press, Princeton, NJ, pp. 501-586, 1995.

[40]

Kagel, J. H. and Levin, D., "Independent private value auctions: Bidder behavior in first-, second-, and third-price auctions with varying numbers of bidders," Econom. J., v103, pp. 868-879, 1993.

[41]

Kagel, J. H., Levin, D., Durlauf, S. N. and Blume, L. E., "Auctions: Experiments," The New Palgrave Dictionary of Economics, Palgrave McMillan, Basingstoke, Hampshire, UK, 2008.

[42]

Kagel, J. H., Levin, D., Kagel, J. H. and Roth, A. E., "Auctions: A survey of experimental research 1995--2008," The Handbook of Experimental Economics, vVol. 2, Princeton University Press, Princeton, NJ, 2012.

[43]

Kirchkamp, O. and Reiss, J. P., "Heterogeneous bids in auctions with rational and markdown bidders---Theory and experiment," 2008.

[44]

Krasnokutskaya, E., "Identification and estimation of auction models with unobserved heterogeneity," Rev. Econom. Stud., v78, pp. 293-327, 2011.

[45]

Krishna, V., Auction Theory, Academic Press, London, 2002.

[46]

Laffont, J.-J., Ossard, H. and Vuong, Q., "Econometrics of first-price auctions," Econometrica, v63, pp. 953-980, 1995.

[47]

Levy, H., "Stochastic dominance and expected utility: Survey and analysis," Management Sci., v38, pp. 555-593, 1992.

Digital Library

[48]

Lucking-Reiley, D., "Using field experiments to test equivalence between auction formats: Magic on the Internet," Amer. Econom. Rev., v89, pp. 1063-1080, 1999.

[49]

Maskin, E. S. and Riley, J. G., "Asymmetric auctions," Rev. Econom. Stud., v67, pp. 413-438, 2000.

[50]

Morgan, J., Steiglitz, K. and Reis, G., "The spite motive and equilibrium behavior in auctions," B. E. J. Econom. Anal. Policy, v2, 2003.

[51]

Myerson, R. B., "Optimal auction design," Math. Oper. Res., v6, pp. 58-73, 1981.

Digital Library

[52]

Netzer, O., Lattin, J. M. and Srinivasan, V., "A hidden Markov model of customer relationship dynamics," Marketing Sci., v27, pp. 185-204, 2008.

Digital Library

[53]

Neugebauer, T. and Perote, J., Bidding “as if” risk neutral in experimental first price auctions without information feedback, Experiment. Econom., v11, pp. 190-202, 2008.

[54]

Neugebauer, T. and Selten, R., "Individual behavior of first-price auctions: The importance of information feedback in computerized experimental markets," Games Econom. Behav., v54, pp. 183-204, 2006.

[55]

Ockenfels, A. and Selten, R., "Impulse balance equilibrium and feedback in first price auctions," Games Econom. Behav., v51, pp. 155-170, 2005.

[56]

Park, Y.-H. and Bradlow, E. T., "An integrated model for bidding behavior in Internet auctions: Whether, who, when, and how much," J. Marketing Res., v42, pp. 470-482, 2005.

[57]

Parkes, D. C. and Kalagnanam, J., "Models for iterative multiattribute procurement auctions," Management Sci., v51, pp. 435-451, 2005.

Digital Library

[58]

"E-auction playbook," pp. S1-S3, 2001.

[59]

Rabiner, L. R., "A tutorial on hidden Markov models and selected applications in speech recognition," Proc. IEEE, v77, pp. 257-286, 1989.

[60]

Selten, R., Buchta, J., Budescu, D. V., Erev, I. and Zwick, R., "Experimental sealed bid first price auctions with directly observed bid functions," Games and Human Behavior: Essays in Honor of Amon Rapoport, Lawrence Erlbaum Associates, Mahwah, NJ, pp. 79-102, 1998.

[61]

Seshadri, S., Chatterjee, K. and Lilien, G. L., "Multiple source procurement competitions," Marketing Sci., v10, pp. 246-263, 1991.

Digital Library

[62]

Shachat, J. and Swarthout, J. T., "Procurement auctions for differentiated goods," Decision Anal., v7, pp. 6-22, 2010.

Digital Library

[63]

Vickrey, W., "Counterspeculation, auctions and competitive sealed tenders," J. Finance, v16, pp. 8-37, 1961.

[64]

Yao, S. and Mela, C. F., "Online auction demand," Marketing Sci., v27, pp. 861-885, 2008.

[65]

Zeithammer, R. and Adams, C., "The sealed-bid abstraction in online auctions," Marketing Sci., v29, pp. 964-987, 2010.

Digital Library

Cited By

Alós-Ferrer CGaragnani M(2023)Part-Time BayesiansManagement Science10.1287/mnsc.2022.458469:9(5523-5542)Online publication date: 1-Sep-2023
https://dl.acm.org/doi/10.1287/mnsc.2022.4584
Fagandini PDierickx I(2023)Computing Profit-Maximizing Bid Shading Factors in First-Price Sealed-Bid AuctionsComputational Economics10.1007/s10614-022-10321-y61:3(1009-1035)Online publication date: 1-Mar-2023
https://dl.acm.org/doi/10.1007/s10614-022-10321-y
Fallucchi FMercatanti ANiederreiter J(2021)Identifying types in contest experimentsInternational Journal of Game Theory10.1007/s00182-020-00738-w50:1(39-61)Online publication date: 1-Mar-2021
https://dl.acm.org/doi/10.1007/s00182-020-00738-w
Show More Cited By

Procuring Commodities: First-Price Sealed-Bid or English Auctions?
1. Applied computing
  1. Enterprise computing
  2. Law, social and behavioral sciences

Recommendations

Pricing commodities

How should a seller price her goods in a market where each buyer prefers a single good among his desired goods, and will buy the cheapest such good, as long as it is within his budget? We provide efficient algorithms that compute near-optimal prices for ...
Procurement Auctions for Differentiated Goods

We consider two mechanisms to procure differentiated goods: a sealed-bid buyer-determined auction and a dynamic-bid price-based auction with bidding credits. The sealed-bid buyer-determined auction is analogous to the “request for quote” procedure ...
Helping hampered bidders—Do subsidy auctions work as intended?
Abstract
The use of preference or discriminatory auctions, where one class of bidders is offered favored treatment over another class, has received mixed attention in the literature. Research has shown there is often an economic benefit of such policies ...

Comments

Please enable JavaScript to view thecomments powered by Disqus.

Information & Contributors

Information

Published In

cover image Marketing Science

Marketing Science Volume 31, Issue 2

03-04 2012

174 pages

ISSN:1526-548X

Issue’s Table of Contents

Publisher

INFORMS

Linthicum, MD, United States

Publication History

Published: 01 March 2012

Accepted: 21 November 2011

Received: 14 February 2009

Author Tags

Qualifiers

Article

Contributors

Other Metrics

View Article Metrics

Bibliometrics & Citations

Bibliometrics

Article Metrics

5
Total Citations
View Citations
0
Total Downloads

Downloads (Last 12 months)0
Downloads (Last 6 weeks)0

Reflects downloads up to 01 Jan 2025

Other Metrics

View Author Metrics

Citations

Cited By

Alós-Ferrer CGaragnani M(2023)Part-Time BayesiansManagement Science10.1287/mnsc.2022.458469:9(5523-5542)Online publication date: 1-Sep-2023
https://dl.acm.org/doi/10.1287/mnsc.2022.4584
Fagandini PDierickx I(2023)Computing Profit-Maximizing Bid Shading Factors in First-Price Sealed-Bid AuctionsComputational Economics10.1007/s10614-022-10321-y61:3(1009-1035)Online publication date: 1-Mar-2023
https://dl.acm.org/doi/10.1007/s10614-022-10321-y
Fallucchi FMercatanti ANiederreiter J(2021)Identifying types in contest experimentsInternational Journal of Game Theory10.1007/s00182-020-00738-w50:1(39-61)Online publication date: 1-Mar-2021
https://dl.acm.org/doi/10.1007/s00182-020-00738-w
Shachat JTan L(2019)An Experimental Investigation of Auctions and Bargaining in ProcurementManagement Science10.1287/mnsc.2013.188061:5(1036-1051)Online publication date: 5-Jan-2019
https://dl.acm.org/doi/10.1287/mnsc.2013.1880
Kaushik BZhang HYang XFu XLiu BWang J(2014)Providing service assurance in mobile opportunistic networksComputer Networks: The International Journal of Computer and Telecommunications Networking10.1016/j.comnet.2014.07.01874:PB(114-140)Online publication date: 9-Dec-2014
https://dl.acm.org/doi/10.1016/j.comnet.2014.07.018

View Options

View options

Media

Figures

Other

Tables

View Issue’s Table of Contents