The impact of public information on bidding in highway procurement auctions

A number of papers in the theoretical auction literature show that the release of information regarding the seller's valuation of an item can cause bidders to bid more aggressively. This widely accepted result in auction theory remains largely untested in the empirical literature. Recent theoretical work has also shown that this effect can be more pronounced in auctions with larger common cost uncertainty. We examine the impact of a policy change by the Oklahoma Department of Transportation that led to the release of the state's internal estimate of the costs to complete highway construction projects. We perform a differences-in-differences analysis comparing bidding in Texas, a state that had a uniform policy of revealing the same information all throughout the period of analysis, to bidding in Oklahoma. Our results show that, in comparison to Texas auctions, the average bid in Oklahoma fell after the change in engineers’ cost estimate (ECE) policy. This decline in bids was even larger for projects where the common uncertainty in costs is greater. Moreover, the within-auction standard deviation of bids fell after the change in ECE policy with the most significant decline observed again in projects with greater common cost uncertainty.     

The effect of corruption on bidding behavior in first-price auctions

When the owner of an object sells it through an auction run by an agent of hers, corruption may appear. In a first-price auction, corruption can make honest bidders more or less aggressive, or their behavior can remain unchanged. We identify sufficient conditions for each of the three possibilities. We analyze the effects of corruption on efficiency, bidders’ welfare and expected revenue. Our results apply as well to the situation—unrelated to corruption—where one of the bidders is granted a right of first refusal.     

Entry decisions and bidding behavior in sequential first-price procurement auctions: An experimental study

Though many real life auctions are run independently of each other, from the bidders' point of view they often form sequences of auctions. We investigate how behavior responds to the additional incentives that are present in such auction sequences. Comparing subjects' decisions in single first-price procurement auctions with their decisions in a game consisting of two subsequent first-price procurement auctions, we find that, in line with the theoretical prediction, entry and bidding behavior is crucially affected by the opportunity cost of early bid submission. Though, entry decisions and average bids in the auction sequence systematically deviate from the perfect Bayesian equilibrium prediction. While the nature of the opponent (human being or computer) has no significant effect on these findings, giving subjects additional feedback on winners and prices seems to reduce the deviations from the equilibrium prediction.     

Quality cut-offs in procurement auctions

Recently the Government of India used procurement auction mechanisms with endogenously determined minimum quality. We find these auctions have no equilibrium in continuous symmetric monotonic pure strategies. This may substantiate the use of auction mechanisms with exogenously determined minimum quality.     

Revealing information in auctions: the allocation effect

When there are two bidders, releasing independent information in an English auction with private values makes the seller worse off. However, this is no longer true with more bidders: when there is enough competition, revelation benefits the auctioneer. In three examples the dividing case is shown to be three bidders. This allocation effect applies to other standard auctions and parallels the bundling decision in a multi-unit auction. I would like to thank Jeremy Bulow, Willie Fuchs, Paul Klemperer, Rob McMillan, Phil Reny, Jeff Zwiebel and especially Andy Skrzypacz. I also grateful to two referees and an Associate Editor for a number of helpful comments.     

Corruption in delegated public procurement auctions

In this paper we theoretically analyse effects of corruption in public procurements within a scoring-auction framework. A corrupt politician, who acts on behalf of the public sector, receives a kickback from the winning bidder. The politician selects the scoring rule. The paper shows that such corruption always leads to lower quality and lower price. Given a level of corruption, a higher bargaining power of the politician in extracting bribes does not affect the quality but leads to higher price.     

Are bid preferences benign? The effect of small business subsidies in highway procurement auctions

Bid preferences in procurement auctions allow firms from an identifiable group an advantage in bidding against unfavored firms. While economic efficiency is expected to fall as a result of bid preferences, government procurement costs may either increase or decrease depending on the competitive response of favored and unfavored firms. This paper uses data from California auctions for road construction contracts, where small businesses receive a 5-percent bid preference in auctions for projects using only state funds and no preferential treatment on projects using federal aid. I show that while firms' bidding behavior matches theoretical predictions, procurement costs are 3.8 percent higher on auctions using preferences. The higher procurement cost in preference auctions is attributed to reduced participation by lower cost large firms.Structural estimates of latent firm costs are then used to evaluate how efficiency and the division of surplus between firms and the government are impacted by bid preferences. Firm profits are 3.1 percent lower under bid preferences, however this is overwhelmed by the efficiency loss due to reduced large firm participation. The efficiency loss conditional on firm participation is estimated to represent around 0.1 percent of overall procurement costs. Including the adverse effect of preferences on the participation of large firms increases the estimated efficiency loss to 3.6 percent, which represents 27 cents for each additional dollar awarded to small businesses through the program. Counterfactual simulations indicate that if participation were instead inelastic to bid preferences, the 5-percent bid preference would be close to the optimal level.     

The (in) effectiveness of procurement auctions in the public sector

This article studies procurement auctions in the public sector using game theoretical tools. The article shows that when participants in an auction are agents with low abilities (low type), as is common in the public sector, they place the same contract request. As a result, the auction mechanism will rarely produce real competition, thus making this mechanism, which limits bidders to those already within the system, ineffective for use in the public sector job market.     

关于国有企业物资采购招投标问题的研究

国有企业生产经营阶段,物资采购为其中的重要环节,直接关乎着企业的正常经验与发展。特别是就国有企业而言,由于自身生产规模较大,需要采购较多的物资量,强化物资采购管理十分有必要。现阶段的国有企业物资采购活动,招投标也是之中的重要组成部分,但就具体状况来看仍存有某些缺陷,要求相应工作者能意识到这一点,并积极的采取有效措施加以解决,从而推动企业的可持续发展。     

Symmetric bidding in second-price, common-value auctions

That second-price, common-value auctions have a unique symmetric equilibrium is shown by demonstrating a useful property: the equilibrium bid dominates any local common bias.     

Indicative bidding and a theory of two-stage auctions

Motivated by the practice of indicative bidding, which is commonly used in sales of complex and valuable assets, this paper develops a theory of two-stage auctions based on the assumption that learning valuation is costly. In various cases that characterize what can be learned in the due diligence stage, we show that no symmetric increasing equilibrium exists and hence efficient entry cannot be guaranteed under the current design of indicative bidding. However, by introducing auctions of entry rights with binding first-round bids, we show that efficient entry can be induced under certain conditions. We also show that optimal auctions are typically characterized by a limited number of final bidders, which justifies the general practice of conducting two-stage auctions in environments with costly entry.     

Demand reduction and preemptive bidding in multi-unit license auctions

Multi-unit ascending auctions allow for equilibria in which bidders strategically reduce their demand and split the market at low prices. At the same time, they allow for preemptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and preemptive bidding are supported as equilibrium phenomena of the ascending auction. In a series of experiments, we compare its performance to that of the discriminatory auction. Strategic demand reduction is quite prevalent in the ascending auction even when entry imposes a (large) negative externality on incumbents. As a result, the ascending auction performs worse than the discriminatory auction both in terms of revenue and efficiency, while entrants’ chances are similar across the two formats.     

Competition in the economic crisis: Analysis of procurement auctions

We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions. Using data from Austrian construction procurements, we estimate bidders׳ construction costs within a private value auction model. We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points. We also find that without the government stimulus package this decrease would have been larger. These two pieces of evidence point to pro-cyclical markups.     

Trust,reputation and bidding behaviour in online mystery auctions

We use transactions from a distinctive online environment of ‘mystery’ auctions to examine the role that trust plays and how it impacts bidding behaviour when the exact characteristics of a good being auctioned are purposefully concealed from buyers. We show that buyers are generally trusting seller claims in online transactions and that seller reputation becomes significantly more important to buyers (as demonstrated by their bids) when the quality (or value) of the good is unspecified. Our findings can be extrapolated to consider broader economic implications of bidding behaviour impacted by trust, such as in financial markets, where over-bidding may lead to price bubbles.     

The value of information in asymmetric all-pay auctions

This note analyzes a two-player all-pay auction with incomplete information. More precisely, one bidder is uncertain about the size of the initial advantage of his rival modeled as a head start in the auction.I derive the unique Bayesian Nash equilibrium outcome for a large class of cumulative distribution functions of the head start. The stronger player generates an informational rent if and only if his head start distribution is not stochastically dominated by a uniform distribution. I identify why my results for an uncertain head start differ qualitatively from uncertainty about a cost function or a valuation.     

A change in the timing of auctions with synergies and its impact on bidding behavior

We compare auctions held in simultaneous and multi-round formats, where synergies and the release of relevant information can create differential bidding effects. We find no statistically significant difference in either the bidding patterns observed or the number of bids submitted.     

Communication and reputation in procurement auctions — Some empirical evidence

This paper studies communication and reputation in market interactions using data from online procurement auctions. Positive reputation ratings and engaging in communication increase a bidder’s probability of winning. Messages are primarily used to reduce the asymmetric information associated with transactions.