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Sophisticated Bidders in Beauty-Contest Auctons

Author

Listed:
  • Stefano Galavotti

    (Unipd - Università degli Studi di Padova = University of Padua)

  • Luigi Moretti

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Paola Valbonesi

    (Unipd - Università degli Studi di Padova = University of Padua)

Abstract

We study bidding behavior by firms in beauty-contest auctions, i.e. auctions in which the winning bid is the one which gets closet to some function (average) of all submitted bids. Using a dataset on public procurement beauty-contest auctions, we show that firms' observed bidding behavior departs from equilibrium and can be predicted by a sophistication index, which captures the firms' accumulated capacity of bidding close to optimality in the past. We show that our empirical evidence is consistent with a Cognitive Hierarchy model of bidders' behavior. We also investigate whether and how firms learn to bid strategically through experience.

Suggested Citation

  • Stefano Galavotti & Luigi Moretti & Paola Valbonesi, 2017. "Sophisticated Bidders in Beauty-Contest Auctons," Post-Print halshs-01440891, HAL.
    • Handle: RePEc:hal:journl:halshs-01440891
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01440891
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    Cited by:

    1. Itzhak Rasooly, 2021. "Going... going... wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour," Papers 2111.05686, arXiv.org.
    2. Itzhak Rasooly, 2022. "Going...going...wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour," Economics Series Working Papers 959, University of Oxford, Department of Economics.
    3. Olga Chiappinelli, 2020. "Decentralization And Public Procurement Performance: New Evidence From Italy," Economic Inquiry, Western Economic Association International, vol. 58(2), pages 856-880, April.
    4. Yao, Ying & Tanaka, Makoto, 2020. "Price-quality trade-off in procurement auctions with an uncertain quality threshold," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 56-70.
    5. Laura Rondi & Paola Valbonesi, 2017. "Pre- and post-award outsourcing: Temporary partnership versus subcontracting in public procurement," "Marco Fanno" Working Papers 0211, Dipartimento di Scienze Economiche "Marco Fanno".
    6. Xiaohu Qian & Shu-Cherng Fang & Min Huang & Tiantian Nie & Xingwei Wang, 2019. "Bidding Decisions with Nonequilibrium Strategic Thinking in Reverse Auctions," Group Decision and Negotiation, Springer, vol. 28(4), pages 757-786, August.

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    More about this item

    Keywords

    cognitive hierarchy; auctions; beauty-contest; public procurement;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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