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Sequential Auctions with Capacity Constraints: An Experimental Investigation

Author

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  • F. Javier Otamendi

    (Departamento de Economía Aplicada I, Universidad Rey Juan Carlos, Paseo Artilleros s/n, 28032 Madrid, Spain)

  • Isabelle Brocas

    (Department of Economics, University of Southern California, 3620 South Vermont Ave. Kaprielian (KAP) Hall, 300 Los Angeles, CA 90089-0253, USA)

  • Juan D. Carrillo

    (Department of Economics, University of Southern California, 3620 South Vermont Ave. Kaprielian (KAP) Hall, 300 Los Angeles, CA 90089-0253, USA)

Abstract

We conduct a laboratory experiment where groups of 4 subjects constrained to obtain at most one good each, sequentially bid for three goods in first and second price auctions. Subjects learn at the beginning of each auction their valuation for the good and exit the auction once they have obtained one good. We show that, contrary to equilibrium predictions, subjects’ bidding behavior is excessively similar across units and across mechanisms at the aggregate level. We provide two (complementary) explanations for these departures. One is bounded rationality. Subjects do not fully comprehend subtle differences between mechanisms. The other is self-selection. Subjects are very heterogeneous and some of them deviate more from equilibrium than others. Since deviations take mostly the form of overbidding, these subjects win the first or second good and exit the auction, leaving those who play closer to theoretical predictions to bid for the third good. Support for this hypothesis comes from the documented higher bidding, lower efficiency and lower profits associated with the first and second unit compared to the third one.

Suggested Citation

  • F. Javier Otamendi & Isabelle Brocas & Juan D. Carrillo, 2018. "Sequential Auctions with Capacity Constraints: An Experimental Investigation," Games, MDPI, vol. 9(1), pages 1-31, March.
    • Handle: RePEc:gam:jgames:v:9:y:2018:i:1:p:15-:d:135923
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    References listed on IDEAS

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    2. Mihail Busu & Cristian Busu, 2021. "Detecting Bid-Rigging in Public Procurement. A Cluster Analysis Approach," Administrative Sciences, MDPI, vol. 11(1), pages 1-14, February.

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    More about this item

    Keywords

    sequential auctions; capacity constraints; selection; overbidding; laboratory experiment;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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