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Procurement and Information Feedback

Author

Listed:
  • Dufwenberg, Martin

    (Dept. of Economics, Stockholm University)

  • Gneezy, Uri

    (Haifa University)

Abstract

A government that regularly procures the services of construction companies wants to minimize its costs. The instrument it can use is the level of information feedback given to the firms in the market. Theoretically, the competition between firms is supposed to drive prices to the lowest possibility, independently of the information feedback. We design an experiment in which firms participate in a first price sealed-bid auction. Interaction takes place in 10 periods according to a random matching mechanism, and we control for the level of information feedback firms receive after each period. It turns out that when firms are informed about the losing bids in previous periods, prices are higher than the theoretical prediction. However, when firms do not receive this information prices converge towards the theoretical prediction. We suggest that aphenomenon of price signaling may be important for explaining these results.

Suggested Citation

  • Dufwenberg, Martin & Gneezy, Uri, 1999. "Procurement and Information Feedback," Research Papers in Economics 2000:2, Stockholm University, Department of Economics.
    • Handle: RePEc:hhs:sunrpe:2000_0002
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    References listed on IDEAS

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    More about this item

    Keywords

    Procurement auction; experiment; information feedback; price signaling;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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