Sophisticated Bidders in Beauty-Contest Auctions
Copyright policy )Sophisticated Bidders in Beauty-Contest Auctions
We study bidding behavior by firms in beauty-contest auctions, i.e., auctions in which the winning bid is the one that gets closest to some function (average) of all submitted bids. Using a dataset on public procurement beauty-contest auctions, we show that firms’ observed bidding behavior departs from equilibrium and can be predicted by a “sophistication” index, which captures the firms’ capacity of bidding close to optimality in the past. We show that our empirical evidence is consistent with a Cognitive Hierarchy model of bidders’ behavior. We also investigate whether and how firms learn to bid strategically through experience. (JEL D22, D44, D83, H57, L12)
and Design/D.D4.D44 - Auctions, JEL: D - Microeconomics/D.D0 - General/D.D0.D01 - Microeconomic Behavior: Underlying Principles, 330, beauty contest, JEL: D - Microeconomics/D.D4 - Market Structure, cognitive hierarchy; auctions; beauty-contest; public procurement., auctions, and Uncertainty/D.D8.D83 - Search • Learning • Information and Knowledge • Communication • Belief • Unawareness, [SHS.ECO] Humanities and Social Sciences/Economics and Finance, JEL: C - Mathematical and Quantitative Methods/C.C7 - Game Theory and Bargaining Theory/C.C7.C70 - General, cognitive hierarchy, JEL: H - Public Economics/H.H5 - National Government Expenditures and Related Policies, [SHS.ECO]Humanities and Social Sciences/Economics and Finance, JEL: D - Microeconomics/D.D8 - Information, JEL: D - Microeconomics/D.D9 - Intertemporal Choice/D.D9.D91 - Intertemporal Household Choice • Life Cycle Models and Saving, [SHS.SCIPO]Humanities and Social Sciences/Political science, Knowledge, public procurement, [SHS.SCIPO] Humanities and Social Sciences/Political science, Pricing, jel: jel:D83, jel: jel:D44, jel: jel:D03, jel: jel:C70, jel: jel:H57
and Design/D.D4.D44 - Auctions, JEL: D - Microeconomics/D.D0 - General/D.D0.D01 - Microeconomic Behavior: Underlying Principles, 330, beauty contest, JEL: D - Microeconomics/D.D4 - Market Structure, cognitive hierarchy; auctions; beauty-contest; public procurement., auctions, and Uncertainty/D.D8.D83 - Search • Learning • Information and Knowledge • Communication • Belief • Unawareness, [SHS.ECO] Humanities and Social Sciences/Economics and Finance, JEL: C - Mathematical and Quantitative Methods/C.C7 - Game Theory and Bargaining Theory/C.C7.C70 - General, cognitive hierarchy, JEL: H - Public Economics/H.H5 - National Government Expenditures and Related Policies, [SHS.ECO]Humanities and Social Sciences/Economics and Finance, JEL: D - Microeconomics/D.D8 - Information, JEL: D - Microeconomics/D.D9 - Intertemporal Choice/D.D9.D91 - Intertemporal Household Choice • Life Cycle Models and Saving, [SHS.SCIPO]Humanities and Social Sciences/Political science, Knowledge, public procurement, [SHS.SCIPO] Humanities and Social Sciences/Political science, Pricing, jel: jel:D83, jel: jel:D44, jel: jel:D03, jel: jel:C70, jel: jel:H57
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