Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/213102 
Year of Publication: 
2019
Series/Report no.: 
ZEW Discussion Papers No. 19-061
Publisher: 
ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung, Mannheim
Abstract: 
The targeted design of auctions has to take behavioral regularities into account. This paper explores whether procurement auction formats can take advantage of bidders' willingness-to-pay-willingness-to-accept disparity. In a laboratory experiment, we compare four different second-price auction formats for procuring a good. The four formats are a sealed-bid auction and three di erent descending-clock auctions. We assume that a bidder's willingness-to-accept exceeds his willingness-to-pay and that, depending on the auction format, a bidder's reference-state shifts such that the bidder's perspective moves from a willingness-to-accept perspective towards a willingness-to-pay perspective, thus inducing aggressive bids. In line with the prediction, auction prices decline across the four formats. In particular, we observe the lowest prices in those two clock auction formats that, at every auction stage, select a bidder as the current leading bidder. We conclude that mechanisms influence the reference state and that auctions that foster reference-state shifts lead to lower payments for the buyer. These results support and generalize findings on sales auctions. However, not all of our findings on procurement auctions mirror findings on sales auctions. Bidders overbid in sealed-bid procurement auctions, which does not mirror the commonly observed overbidding in sealed-bid sales auctions.
Subjects: 
procurement auction
experiment
WTP-WTA disparity
reference-dependence
JEL: 
D44
H57
D91
C92
Document Type: 
Working Paper

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