To Thine Own Self Be True: Asymmetric Information in Procurement Auctions

Wooten, Joel O.; Donohue, Joan M.; Fry, Timothy D.; Whitcomb, Kathleen M.

doi:10.2139/ssrn.3107682

Cited by 2 publications

(11 citation statements)

References 45 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…We also conjecture that full information transparency—long the staple in auction research—is likely unrealistic and unhelpful (similar to Dyer and Kagel [1996] and Wooten et al. [2020]). Finally, looking at bidder behavior, we document how the situation matters and bidders react myopically to prior rounds.…”

Section: Discussionmentioning

confidence: 62%

“…That supports our theoretical findings (Figure 1), where a CV smaller than 3% resulted in higher expected profits for the disadvantaged bidder, and our average observed profit outcomes (Table 3). Also, it seems counterintuitive that possessing more information about a competing bidder would reduce performance, but that result is similar to recent findings in CV procurement auctions (Wooten at al., 2020). Thus, although more precise cost estimates may help offset a cost disadvantage, knowledge about the cost estimating abilities of a competitor may not.…”

Section: Analysis and Resultsmentioning

confidence: 99%

“…Wooten et al. (2020) highlight that a bidder's previous auction result influences their next bid. We test for the same effect in our procurement auction, and see similar reactions (Figure 4).…”

Section: Analysis and Resultsmentioning

confidence: 99%

“…In a CV lab setting, Wooten et al. (2020) show that knowing competitor information can lead to information overload and more aggressive bids. This appears to be a similar to our PV auctions with uncertainty.…”

Section: Analysis and Resultsmentioning

confidence: 99%

“…Avoiding uniform cost estimate distributions in favor of more realistic distributions is another way that our experiment adds insight to the asymmetric procurement auction literature. In addition to calls for such realism (Dyer & Kagel, 1996; Aloysius et al., 2016), there has been at least one recent experiment that has used a bell‐shaped estimate distribution (Wooten et al., 2020). We follow this roadmap and also provide evidence that such a distribution is appropriate.…”

Section: Experimental Designmentioning

confidence: 99%

See 4 more Smart Citations

Overcoming Cost Disadvantages in Procurement Auctions

et al. 2020

Self Cite

View full text Add to dashboard Cite

An increasingly studied auction format is the asymmetric procurement auction, which features an advantaged bidder selling a good or service to a buyer. Such asymmetric setups, although generally believed to be more realistic, are also more complex. We investigate one such setting where one bidder has a cost advantage. Our central question is whether bidders who are cost disadvantaged can overcome their inferior cost position. In a design that mirrors real construction procurement auctions, our laboratory experiment tests whether two information asymmetries (more precise cost estimates and knowledge about the cost estimating abilities of a competitor) allow cost-disadvantaged sellers to better compete. We begin by testing bidder performance in a procurement auction where the only asymmetry is due to a cost. In this setting, analytical benchmarks are known. We find-consistent with other studies-that all bidder types submit aggressive bids well below the Nash equilibrium predictions. Over time, subjects submit less aggressive bids, moving closer to what theory would predict. We then extend our experiments to include our novel, multiple asymmetry setup. We find that endowing cost-disadvantaged bidders with higher cost estimate precision benefits the bidder, as one might expect. Notably, providing market knowledge about a rival's ability to estimate costs may not provide a benefit; in fact, it seems bidders are not able to use this information effectively and performance suffers. Finally, we show how bidders behave myopically when making these decisions. These implications raise important questions about how asymmetries interact in complex auction settings. [

show abstract

Section: Discussionmentioning

confidence: 62%

Section: Analysis and Resultsmentioning

confidence: 99%

Section: Analysis and Resultsmentioning

confidence: 99%

Section: Analysis and Resultsmentioning

confidence: 99%