IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v291y2021i2p711-721.html
   My bibliography  Save this article

The beauty of Dutch: Bidding behavior in combinatorial first-price procurement auctions

Author

Listed:
  • Paulsen, Per
  • Bichler, Martin
  • Kokott, Gian-Marco

Abstract

Ex-post split-award auctions are a frequently used form of combinatorial auction mechanism in practice. The procurement quantity is split into several shares and suppliers can submit bids on separate shares as well as on the entire quantity. Markets with diseconomies of scale are wide-spread, but strategically challenging. In a game-theoretical equilibrium analysis, Kokott et al. (2019) have recently shown that in contrast to single-object auctions, there is no strategic equivalence between first-price sealed-bid (FPSB) and Dutch combinatorial auctions. The FPSB auctions are characterized by efficient and inefficient equilibria while the Dutch auctions only possess efficient equilibria. We report the results of extensive laboratory experiments and show that the theory explains the bid data surprisingly well. Importantly, a compound Dutch auction format weakly outperforms the wide-spread combinatorial first-price sealed-bid auction in efficiency and total procurement costs. The results provide guidance for procurement managers in the field.

Suggested Citation

  • Paulsen, Per & Bichler, Martin & Kokott, Gian-Marco, 2021. "The beauty of Dutch: Bidding behavior in combinatorial first-price procurement auctions," European Journal of Operational Research, Elsevier, vol. 291(2), pages 711-721.
    • Handle: RePEc:eee:ejores:v:291:y:2021:i:2:p:711-721
    DOI: 10.1016/j.ejor.2020.09.048
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221720308523
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2020.09.048?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kokott, Gian-Marco & Bichler, Martin & Paulsen, Per, 2019. "The beauty of Dutch: Ex-post split-award auctions in procurement markets with diseconomies of scale," European Journal of Operational Research, Elsevier, vol. 278(1), pages 202-210.
    2. Li, Zhen & Yue, Jinfeng & Kuo, Ching-Chung, 2018. "Design of discrete Dutch auctions with consideration of time," European Journal of Operational Research, Elsevier, vol. 265(3), pages 1159-1171.
    3. Indranil Chakraborty, 2006. "Characterization of equilibrium in pay-as-bid auctions for multiple units," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(1), pages 197-211, September.
    4. Oliver Kirchkamp & J. Philipp Reiß, 2011. "Out‐Of‐Equilibrium Bids in First‐Price Auctions: Wrong Expectations or Wrong Bids," Economic Journal, Royal Economic Society, vol. 121(557), pages 1361-1397, December.
    5. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(1), pages 1-31.
    6. Martin Bichler & Kemal Guler & Stefan Mayer, 2015. "Split-Award Procurement Auctions—Can Bayesian Equilibrium Strategies Predict Human Bidding Behavior in Multi-Object Auctions?," Production and Operations Management, Production and Operations Management Society, vol. 24(6), pages 1012-1027, June.
    7. Cox, James C. & Smith, Vernon L. & Walker, James M., 1983. "Tests of a heterogeneous bidders theory of first price auctions," Economics Letters, Elsevier, vol. 12(3-4), pages 207-212.
    8. James J. Anton & Dennis A. Yao, 1992. "Coordination in Split Award Auctions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 681-707.
    9. Emel Filiz-Ozbay & Erkut Y. Ozbay, 2007. "Auctions with Anticipated Regret: Theory and Experiment," American Economic Review, American Economic Association, vol. 97(4), pages 1407-1418, September.
    10. Olivier Armantier & Nicolas Treich, 2009. "Subjective Probabilities In Games: An Application To The Overbidding Puzzle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(4), pages 1079-1102, November.
    11. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shachat, Jason & Tan, Lijia, 2023. "How auctioneers set reserve prices in procurement auctions," European Journal of Operational Research, Elsevier, vol. 304(2), pages 709-728.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sascha Füllbrunn & Dirk‐Jan Janssen & Utz Weitzel, 2019. "Risk Aversion And Overbidding In First Price Sealed Bid Auctions: New Experimental Evidence," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 631-647, January.
    2. Kokott, Gian-Marco & Bichler, Martin & Paulsen, Per, 2019. "The beauty of Dutch: Ex-post split-award auctions in procurement markets with diseconomies of scale," European Journal of Operational Research, Elsevier, vol. 278(1), pages 202-210.
    3. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
    4. Claudia Neri, 2015. "Eliciting beliefs in continuous-choice games: a double auction experiment," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 569-608, December.
    5. Diego Aycinena & Hernán Bejarano & Lucas Rentschler, 2018. "Informed entry in auctions," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(1), pages 175-205, March.
    6. Alcalde, José & Dahm, Matthias, 2019. "Dual sourcing with price discovery," Games and Economic Behavior, Elsevier, vol. 115(C), pages 225-246.
    7. Ratan, Anmol, 2015. "Does displaying probabilities affect bidding in first-price auctions?," Economics Letters, Elsevier, vol. 126(C), pages 119-121.
    8. Sascha Füllbrunn & Tibor Neugebauer, 2013. "Varying the number of bidders in the first-price sealed-bid auction: experimental evidence for the one-shot game," Theory and Decision, Springer, vol. 75(3), pages 421-447, September.
    9. Oliver Kirchkamp & Wladislaw Mill, 2019. "Spite vs. risk: explaining overbidding," CESifo Working Paper Series 7631, CESifo.
    10. Fugger, Nicolas & Gillen, Philippe & Rasch, Alexander & Zeppenfeld, Christopher, 2016. "Preferences and Decision Support in Competitive Bidding," VfS Annual Conference 2016 (Augsburg): Demographic Change 145849, Verein für Socialpolitik / German Economic Association.
    11. Chernomaz, Kirill & Levin, Dan, 2012. "Efficiency and synergy in a multi-unit auction with and without package bidding: An experimental study," Games and Economic Behavior, Elsevier, vol. 76(2), pages 611-635.
    12. Kirchkamp, Oliver & Mill, Wladislaw, 2021. "Spite vs. risk: Explaining overbidding in the second-price all-pay auction," Games and Economic Behavior, Elsevier, vol. 130(C), pages 616-635.
    13. Oliver Kirchkamp & J. Philipp Reiß, 2019. "Heterogeneous bids in auctions with rational and boundedly rational bidders: theory and experiment," International Journal of Game Theory, Springer;Game Theory Society, vol. 48(4), pages 1001-1031, December.
    14. Yusufcan Masatlioglu & Sarah Taylor & Neslihan Uler, 2012. "Behavioral mechanism design: evidence from the modified first-price auctions," Review of Economic Design, Springer;Society for Economic Design, vol. 16(2), pages 159-173, September.
    15. Jhunjhunwala, Tanushree, 2021. "Searching to avoid regret: An experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 298-319.
    16. Ivanova-Stenzel, Radosveta & Seres, Gyula, 2021. "Are strategies anchored?," European Economic Review, Elsevier, vol. 135(C).
    17. Ernst Fehr & Holger Herz & Tom Wilkening, 2013. "The Lure of Authority: Motivation and Incentive Effects of Power," American Economic Review, American Economic Association, vol. 103(4), pages 1325-1359, June.
    18. Shakun D. Mago & Anya C. Savikhin & Roman M. Sheremeta, 2012. "Facing Your Opponents: Social identification and information feedback in contests," Working Papers 12-15, Chapman University, Economic Science Institute.
    19. Jose Alcalde & Matthias Dahm, 2016. "Proportional payoffs in legislative bargaining with weighted voting: a characterization," Discussion Papers 2016-03, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    20. Brisset, Karine & Cochard, François & Le Gallo, Julie, 2015. "Secret versus public reserve price in an “outcry” English procurement auction: Experimental results," International Journal of Production Economics, Elsevier, vol. 169(C), pages 285-298.

    More about this item

    Keywords

    Split-award auctions; Lab experiments;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:291:y:2021:i:2:p:711-721. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.