Procurement Bidding in First-Price and Second-Price Sealed Bid Common Value Auctions

Within the framework of the common value model, we examine the magnitude of the difference in expected outcome between first-price and second-price sealed bid auctions. The study is limited to two empirical specifications of bidders’ signals: Weibull and normal distribution. The optimal bid functions and the expected procurer’s cost under both auction formats are derived. Simulations are undertaken to analyze the impact that random draws of signals have on the differences in outcome from the two auction formats. Using estimates from structural estimation in previous empirical work on first-price auction data, where Weibull and normal distributions of signals have been applied, the hypothetical expected gain from switching from a first-price sealed bid auction to a second-price sealed bid auction mechanism is computed.Common value auctions; procurement; Vickrey auction

Taking the Lab to the Field: Experimental Tests of Alternative Mechanisms to Procure Multiple Contracts

The first part of the paper reports the results from a sequence of laboratory experiments comparing the bidding behavior for multiple contracts in three different sealed bid auction mechanisms; first-price simultaneous, first-price sequential and first-price combinatorial bidding. The design of the experiment is based on experiences from a public procurement auction of road markings in Sweden. Bidders are asymmetric in their cost functions; some exhibit decreasing average costs of winning more than one contract, whereas other bidders have increasing average cost functions. The combinatorial bidding mechanism is demonstrated to be most efficient. The second part of the paper describes how the lab experiment was followed up by a field test of a combinatorial procurement auction of road markings.Multiple units, non-constant costs, asymmetric redemption values, alternative procurement mechanisms