Teaching auction strategy using experiments administered via the internet

Abstract

The authors present an experimental design used to teach concepts in the economics of auctions and implications for e-Business procurement. The experiment is easily administered and can be adapted to many different treatments. The chief innovation is that it doce not require the use of a lab or class time. Instead, the design can be implemented on any of the many Web-based auction sites (we use Yahoo!). This design has been used to demonstrate how information is transmitted by bids in an auction and how this can make it difficult for well-informed bidders to profit from their information, leading to disincentives tor relatively informed bidders to enter an auction. Consequently, an auction may sometimes be an ineffective mechanism for procurement. compared with other options. The auction experiment shows how information can dramatically affect market outcomes and bidder incentives