This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2024
  4. Program
  5. The Economics of Auction and Procurement Markets
« Back to Results

The Economics of Auction and Procurement Markets

Paper Session

Friday, Jan. 5, 2024 12:30 PM - 2:15 PM (CST)

Convention Center, 223
Hosted By: Industrial Organization Society
  • Chair: Kenneth Hendricks, University of Wisconsin-Madison

Winner’s Curse and Entry in Highway Procurement

Benjamin Rosa
,
University of Michigan
Dakshina G. De Silva
,
Lancaster University

Abstract

In procurement auctions, there are situations where a bidder’s cost is uncertain at the time of bidding, leading to a “winner’s curse.” We use bridgework data from the State of Oklahoma and an empirical auction model to explore whether the winner’s curse also affects entry, which can have serious implications for procurement costs and efficiency. We find that the winner’s curse generally reduces entry in Oklahoma by reducing bidder markups conditional on participating. We then investigate various entry policies—including taxes, subsidies, and entry rights auctions.

Detection of Collusive Networks in E-Procurement

Bruno Baránek
,
Princeton University
Leon Andreas Musolff
,
University of Pennsylvania
Vítězslav Titl
,
Utrecht University

Abstract

We develop a method for detecting cartels in multistage auctions. Our approach allows a firm to be collusive when facing members of its cartel yet competitive when facing others. Intuitively, as initial bids are shaded, close initial bids not only imply similar costs but also provide an incentive to undercut. We detect firm pairs that ignore this incentive only when facing each other. Our algorithm predicts Ukraine's Antimonopoly Committee sanctions, yet uncovers additional collusion: 2,371 collusive firms participate in 19% of auctions, increasing costs by 2.12%. Cartels typically comprise just two members, and members often share the same ZIP code.

Asymmetric Information in the Supply Chain of Mortgages

Jonathan Becker
,
University of Wisconsin-Madison
Kenneth Hendricks
,
University of Wisconsin-Madison
Jean Francoise Houde
,
University of Wisconsin-Madison
Diwakar Raisingh
,
U.S. Department of Justice

Abstract

This paper studies the cost of financial intermediation services provided by traditional banks and non-bank lenders in the U.S. market for mortgages. Over 90% of “conforming” loans are securitized, and roughly 50% of these loans are originated and serviced by different lenders. The cost of financial intermediation is therefore determined by the resale value of loans in the secondary and wholesale markets. We develop a simple modeling framework for loan valuation in these two markets. The prices that banks are willing to pay for loans in the wholesale market depend upon their resale prices in the MBS market, and on the stream of fees they can earn from servicing the loans. Early prepayment is the primary source of risk, and the main friction is private information about this risk. The goals of the paper are to validate the model of loan valuation and test for adverse selection in the wholesale and MBS markets using a proprietary auction dataset from a large loan exchange platform and MBS data on loan prices and duration. Our empirical results support the hypothesis that originators and banks are privately and asymmetrically informed about prepayment risk.

Discussant(s)
Vivek Bhattacharya
,
Northwestern University
Yunmi Kong
,
Rice University
JEL Classifications
  • D4 - Market Structure, Pricing, and Design
  • L0 - General