An experimental study on sequential auctions with privately known capacities

Abstract

We experimentally study bidding behavior in sequential first-price procurement auctions where bidders' capacity constraints are private information. Treatment differs in the ex-ante probability distribution of sellers' capacities and in the (exogenous) probability that the second auction is actually implemented. Our results show that: (i) bidding behavior in the second auction conforms with sequential rationality; (ii) while first auction's bids negatively depend on capacity, bidders seem unable to recognize this link when, at the end of the first auction, they state their beliefs on the opponent's capacity. To rationalize this inconsistency between bids and beliefs, we conjecture that bidding in the first auction is also affected by a hidden, behavioral type-related to the strategic sophistication of bidders-that obfuscates the link between capacity and bids. Building on this intuition, we show that a simple level-k model may help explain the inconsistency.

Bidding on Price and Quality: An Experiment on the Complexity of Scoring Rule Auctions

“…Finally, our study contributes to the literature exploring how individuals act in complex strategic environments. Auctions are certainly one setting where the issue of complexity is pervasive, especially when multiple items are sold/procured, either sequentially (see Corazzini et al, 2019, and the references therein) or simultaneously (see the survey by Kwasnica and Sherstyuk, 2013). In the context of combinatorial auctions, Kwasnica et al (2005) refer to the "computational complexity of the bidders' problem" as a potential cause of reduction in an auction's efficiency; Kagel et al (2010) show that suppliers tend to myopically bid on a small number of packages, which may negatively affect efficiency; Scheffel et al (2012) find that suppliers use simple heuristics to select packages and argue that this approach has to do with cognitive limits in terms of the number of items on which people can simultaneously concentrate.…”

EdgeDR: An Online Mechanism Design for Demand Response in Edge Clouds

“…Ban et al [45] focus on the second-price sequential auction where items are sold sequentially and bidder valuations are time-varying, and propose an option-value bidding strategy to achieve the subgame-perfect equilibrium. Corazzini et al [46] study the sequential reverse auction where each bidder's capacity is unknown to the auctioneer. Also, some studies [47], [48], [49] focus on a particular case where the sequential auction is with only two items or two bidders.…”

Belief Elicitation and Behavioral Incentive Compatibility

“…While our study also elicits posteriors that exhibit similar patterns, our focus is on eliciting the induced prior probability-where we know what a well-incentivized participant should report. 3 Recent applications of the BSR include studies on gender and coordination (Babcock et al, 2017), investment and portfolio choice (Hillenbrand and Schmelzer, 2017;Drerup et al, 2017), coordination (Masiliūnas, 2017), matching markets (Chen and He, 2017;Dargnies et al, 2019;Sonsino, Lahav, and Levkowitz., 2020), biased information processing (Graeber, 2020;Hossain and Okui, 2019;Erkal et al, 2021;Rafkin, Shreekumar, and Vautrey (2021), cheap talk (Meloso et al, 2018), risk taking (Ahrens and Bosch-Rosa, 2019), information source choice (Charness, Oprea, and Yuksel, 2021), memory and uncertainty (Enke, Schwerter, and Zimmermann, 2020;Enke and Graeber, 2021), discrimination (Aksoy, Chadd, and Koh, 2021;Dianat, Echenique, andYariv, 2018, Koutout, 2020), correlated and motivated beliefs (Hossain and Okui, 2020;Oprea and Yuksel, 2020;Cason, Sharma, and Vadovič, 2020), auctions with private information (Corazzini, Galavotti, and Valbonesi, 2019); information and market behavior (Filippin and Mantovani, 2019;Renes and Visser, 2019); institutions and cognitive ability (Choi et al, 2020); overconfidence and bargaining (Colzani and Santos-Pinto, 2020); second-order beliefs (Dustan, Koutout, and Leo (2020); beliefs in strategic games (Aoyagi, Frechette, and Yuksel, 2021;Castillo et al, 2019).…”