American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Sophisticated Bidders in Beauty-Contest Auctions
American Economic Journal: Microeconomics
vol. 10,
no. 4, November 2018
(pp. 1–26)
Abstract
We study bidding behavior by firms in beauty-contest auctions, i.e., auctions in which the winning bid is the one which 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.Citation
Galavotti, Stefano, Luigi Moretti, and Paola Valbonesi. 2018. "Sophisticated Bidders in Beauty-Contest Auctions." American Economic Journal: Microeconomics, 10 (4): 1–26. DOI: 10.1257/mic.20150240Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D44 Auctions
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- H57 National Government Expenditures and Related Policies: Procurement
- L12 Monopoly; Monopolization Strategies
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