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Note on Online Auctions with Costly Bid Evaluation

Author

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  • Scott M. Carr

    (The Anderson School of Management at UCLA, Los Angeles, California 90095-1481)

Abstract

As seen in the data of Snir and Hitt (2003), online service procurement auctions often end without achieving a contract despite active bidding, yet the existing auction literature is silent on why this occurs. One explanation for these unconsummated auctions may be that perfectly acceptable bids are submitted but disregarded because of the cost of assessing the bids' viability and the bidders' capabilities. This note examines this possibility by characterizing optimal and equilibrium bidding and bid-evaluation decisions in the presence of these costs.

Suggested Citation

  • Scott M. Carr, 2003. "Note on Online Auctions with Costly Bid Evaluation," Management Science, INFORMS, vol. 49(11), pages 1521-1528, November.
    • Handle: RePEc:inm:ormnsc:v:49:y:2003:i:11:p:1521-1528
    DOI: 10.1287/mnsc.49.11.1521.20581
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    References listed on IDEAS

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    1. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-392, June.
    2. Edieal J. Pinker & Abraham Seidmann & Yaniv Vakrat, 2003. "Managing Online Auctions: Current Business and Research Issues," Management Science, INFORMS, vol. 49(11), pages 1457-1484, November.
    3. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
    4. Eli M. Snir & Lorin M. Hitt, 2003. "Costly Bidding in Online Markets for IT Services," Management Science, INFORMS, vol. 49(11), pages 1504-1520, November.
    5. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Arthur M. Geoffrion & Ramayya Krishnan, 2003. "E-Business and Management Science: Mutual Impacts (Part 1 of 2)," Management Science, INFORMS, vol. 49(10), pages 1275-1286, October.
    2. Karca D. Aral & Damian R. Beil & Luk N. Van Wassenhove, 2021. "Supplier Sustainability Assessments in Total‐Cost Auctions," Production and Operations Management, Production and Operations Management Society, vol. 30(4), pages 902-920, April.
    3. Radkevitch, U.L. & van Heck, H.W.G.M. & Koppius, O.R., 2008. "Choosing between Auctions and Negotiations in Online B2B Markets for IT Services: The Effect of Prior Relationships and Performance," ERIM Report Series Research in Management ERS-2008-004-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    4. Radkevitch, U.L. & van Heck, H.W.G.M. & Koppius, O.R., 2008. "Coping with Costly Bid Evaluation in Online Reverse Auctions for IT Services," ERIM Report Series Research in Management ERS-2008-039-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    5. Zhixi Wan & Damian R. Beil, 2009. "RFQ Auctions with Supplier Qualification Screening," Operations Research, INFORMS, vol. 57(4), pages 934-949, August.
    6. Chen Liang & Yili Hong & Pei-Yu Chen & Benjamin B. M. Shao, 2022. "The Screening Role of Design Parameters for Service Procurement Auctions in Online Service Outsourcing Platforms," Information Systems Research, INFORMS, vol. 33(4), pages 1324-1343, December.
    7. Radkevitch, U.L. & van Heck, H.W.G.M. & Koppius, O.R., 2007. "Portfolios of Exchange Relationships: An Empirical Investigation of an Online Marketplace for IT Services," ERIM Report Series Research in Management ERS-2007-035-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    8. Bernhardt, Martin & Spann, Martin, 2010. "An Empirical Analysis of Bidding Fees in Name-your-own-price Auctions," Journal of Interactive Marketing, Elsevier, vol. 24(4), pages 283-296.
    9. Eli M. Snir & Lorin M. Hitt, 2003. "Costly Bidding in Online Markets for IT Services," Management Science, INFORMS, vol. 49(11), pages 1504-1520, November.
    10. Pham, Long & Teich, Jeffrey & Wallenius, Hannele & Wallenius, Jyrki, 2015. "Multi-attribute online reverse auctions: Recent research trends," European Journal of Operational Research, Elsevier, vol. 242(1), pages 1-9.
    11. Yili Hong & Chong (Alex) Wang & Paul A. Pavlou, 2016. "Comparing Open and Sealed Bid Auctions: Evidence from Online Labor Markets," Information Systems Research, INFORMS, vol. 27(1), pages 49-69, March.
    12. Amy Greenwald & Karthik Kannan & Ramayya Krishnan, 2010. "On Evaluating Information Revelation Policies in Procurement Auctions: A Markov Decision Process Approach," Information Systems Research, INFORMS, vol. 21(1), pages 15-36, March.
    13. Ashish Arora & Amy Greenwald & Karthik Kannan & Ramayya Krishnan, 2007. "Effects of Information-Revelation Policies Under Market-Structure Uncertainty," Management Science, INFORMS, vol. 53(8), pages 1234-1248, August.
    14. Radkevitch, U.L. & van Heck, H.W.G.M. & Koppius, O.R., 2006. "Buyer Commitment and Opportunism in the Online Market for IT Services," ERIM Report Series Research in Management ERS-2006-046-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    15. Arthur M. Geoffrion & Ramayya Krishnan, 2003. "E-Business and Management Science: Mutual Impacts (Part 2 of 2)," Management Science, INFORMS, vol. 49(11), pages 1445-1456, November.
    16. Kevin Yili Hong & Alex Chong Wang & Paul A. Pavlou, 2013. "How does Bid Visibility Matter in Buyer-Determined Auctions? Comparing Open and Sealed Bid Auctions in Online Labor Markets," Working Papers 13-05, NET Institute.
    17. Karthik N. Kannan, 2012. "Effects of Information Revelation Policies Under Cost Uncertainty," Information Systems Research, INFORMS, vol. 23(1), pages 75-92, March.

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