Credible Auctions: A Trilemma

Akbarpour, Mohammad; Li, Shengwu

doi:10.3982/ecta15925

Cited by 86 publications

(82 citation statements)

References 79 publications

(135 reference statements)

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“…Moreover, there is a growing literature evaluating sequential mechanisms used in the field (Gong and Liang, 2016;Grenet et al, 2019;Veski et al, 2017;Dur et al, 2018). Other recent papers, such as Akbarpour and Li (2020) and Hakimov and Raghavan (2020) show that the use of sequential mechanisms can also be explained by their transparency and credibility characteristics: the experience that participants have when interacting with these mechanisms can convey information that helps them to be sure that the allocation is produced by following the rules.…”

mentioning

confidence: 99%

Pick-an-object Mechanisms

Bó

Hakimov

2020

SSRN Journal

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confidence: 99%

Pick-an-object Mechanisms

Bó

Hakimov

2020

SSRN Journal

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“…First of all, descending auctions are commonly used in procurement (Elmaghraby, 2007). Second, they are 'credible' mechanisms in the sense that the auctioneer cannot deviate from the rules without at least one bidder detecting the deviation (Akbarpour and Li, 2019). Third, they are strategically straightforward in that for suppliers, it is a weakly dominant strategy to bid value, regardless of risk attitude, in contrast to most other auction formats.…”

Section: Theorymentioning

confidence: 99%

Cheap-talk Communication in Procurement Auctions: Theory and Experiment

Onderstal

Yang

2020

SSRN Journal

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In procurement auctions, bidders are usually better informed about technical, financial, or legal aspects of the goods and services procured. Therefore, the buyer may include a dialogue in the procurement procedure which enables the suppliers to reveal information that will help the buyer to better specify the terms of the contract. This paper addresses the question of the value added of letting the sourcing process consist of both an auction and a negotiation stage, theoretically and in a laboratory experiment. Our theoretical results suggest that in a setting where the buyer and the suppliers have aligned interests regarding the terms of the contract, allowing the winning supplier to communicate with the buyer after the auction is beneficial to the buyer compared to no communication and ex-ante communication. In a setting where the buyer and the winning supplier have misaligned interests regarding the terms, the buyer benefits from ex-ante communication relative to no communication and ex-post communication. Our experimental data provide strong evidence for the predictions in the aligned-interest setting. In the misaligned-interest setting, we do not observe significant differences between the three mechanisms. Our experimental findings offer several managerial implications for the appropriate design of sourcing processes. a We received excellent questions, comments, and suggestions from "Even for rather simple contracts […] the purchaser is seldom interested solely in price -he is interested in acquiring and providing information as well." Victor P. Goldberg (1977) 1 Beall et al. (2003) report that companies in the US and Europe expected to spend about 11.5% of total expenditure using electronic reverse auctions. OECD (2018) reports that the amount spent in OECD countries on public procurement is about 12% of GDP. 2 Another purpose of request-of-information rounds is to weed out unqualified suppliers (e.g., Elmaghraby, 2007). show that an auctioneer can alleviate winner's curse problems by soliciting non-binding bids before the auction. However, observe in an experiment that bidders tend to coordinate on a "babbling equilibrium" in which no information is revealed. Another reason for soliciting non-binding bids is to enhance efficient entry into the auction when auction entry is costly. See Ye (2007) and Quint and Hendricks (2018) for a theoretical analysis and Kagel et al. (2008) for a laboratory study. 3 Other reasons for the buyer to allow for post-auction communication include price renegotiations (e.g., Shachat and Tan, 2014), and contingencies arising which are not specified in the original contract resulting in cost overruns (e.g., Herweg and Schwarz, 2018). 4 Directive 2014/24/EU on public procurement. communication reveal useful information for the buyer? Under what conditions does the buyer benefit from non-binding communication from the suppliers, before or after the auction? Under what conditions does the buyer prefer pre-auction communication over post-auction communication and the other way aro...

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“…Moreover, this type of cheating cannot be detected by the winner as long as she does not observe the second-highest bid. In the language of Akbarpour and Li (2020), the seller's behavior is supported by the innocent explanation that the highest and second-highest bids are identical.…”

Section: Introductionmentioning

confidence: 99%

Credibility in Second-Price Auctions: An Experimental Test

Dianat

Freer

2020

SSRN Journal

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We provide the first direct test of how the credibility of an auction format affects bidding behavior and final outcomes. To do so, we conduct a series of laboratory experiments where the role of the seller is played by a human subject who receives the revenue from the auction and who (depending on the treatment) has agency to determine the outcome of the auction. We find that a large majority of bids in the non-credible version of the second-price auction lie between the theoretical benchmarks of the first-price auction and the credible second-price auction. While sellers in the non-credible second-price auction often break the rules of the auction and overcharge the winning bidder, they typically do not maximize revenue. We provide a behavioral explanation for our results based on incorrect beliefs (on the part of bidders) and aversion to rule-breaking (on the part of sellers), which is confirmed by revealed preference tests.

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Credible Auctions: A Trilemma

Cited by 86 publications

References 79 publications

Pick-an-object Mechanisms

Pick-an-object Mechanisms

Cheap-talk Communication in Procurement Auctions: Theory and Experiment

Credibility in Second-Price Auctions: An Experimental Test

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