EXPERIMENTAL STUDIES OF OPTIMALITY AND EFFICIENCY OF INSTITUTIONAL INNOVATIONS IN THE CASE OF AUCTION RULES USED IN PROCUREMENT
EXPERIMENTAL STUDIES OF OPTIMALITY AND EFFICIENCY OF INSTITUTIONAL INNOVATIONS IN THE CASE OF AUCTION RULES USED IN PROCUREMENT

Summary/Abstract: Private, economic agents are free to modify the rules of auctions which they use to determine a contractor in a procurement. Such institutional innovations might gain popularity with time if they manage to improve the auctions’ results. The paper discusses three modifications of a standard first-price sealed-bid auction, all consisting in starting an additional stage in which the second-best bidder is given a chance to improve his or her bid. The laboratory experiments showed that two of the analyzed innovations failed to improve the procurement auctions’ results, as they led to higher prices and lower efficiency. One rule, though, being a sealed-bid auction with an additional stage of English auction, turned out to be significantly more efficient than the first-price sealed-bid auction, and so it appears an interesting alternative to it.

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