Naveen Jindal School of Management
Permanent URI for this communityhttps://hdl.handle.net/10735.1/1529
Browse
Browsing Naveen Jindal School of Management by Author "0000 0000 1152 7888 (Katok, E)"
Now showing 1 - 2 of 2
- Results Per Page
- Sort Options
Item Should Sellers Prefer Auctions? A Laboratory Comparison of Auctions and Sequential Mechanisms(Informs) Davis, Andrew M.; Katok, Elena; Kwasnica, Anthony M.; 0000 0000 1152 7888 (Katok, E); 198160306 (Katok, E)When bidders incur a cost to learn their valuations, bidder entry can impact auction performance. Two common selling mechanisms in this environment are an English auction and a sequential bidding process. Theoretically, sellers should prefer the auction, because it generates higher expected revenues, whereas bidders should prefer the sequential mechanism, because it generates higher expected bidder profits. We compare the two mechanisms in a controlled laboratory environment, varying the entry cost, and find that, contrary to the theoretical predictions, average seller revenues tend to be higher under the sequential mechanism, whereas average bidder profits are approximately the same. We identify three systematic behavioral deviations from the theoretical model: (1) in the auction, bidders do not enter 100% of the time; (2) in the sequential mechanism, bidders do not set preemptive bids according to the predicted threshold strategy; and (3) subsequent bidders tend to overenter in response to preemptive bids by first bidders. We develop a model of noisy bidder-entry costs that is consistent with these behaviors, and we show that our model organizes the experimental data well.Item When Does it Pay to Delay Supplier Qualification? Theory and ExperimentsWan, Zhixi; Beil, Damian R.; Katok, Elena; 0000 0000 1152 7888 (Katok, E); 198160306 (Katok, E)We study a procurement setting in which the buyer seeks a low price but will not allocate the contract to a supplier who has not passed qualification screening. Qualification screening is costly for the buyer, involving product tests, site visits, and interviews. In addition to a qualified incumbent supplier, the buyer has an entrant of unknown qualification. The buyer wishes to run a price-only, open-descending reverse auction between the incumbent and the entrant, and faces a strategic choice about whether to perform qualification screening on the entrant before or after the auction. We analytically study the buyer's optimal strategy, accounting for the fact that under postauction qualification, the incumbent knows he could lose the auction but still win the contract. In our analysis, we derive the incumbent's optimal bidding strategy under postauction qualification and find that he follows a threshold structure in which high-cost incumbents hold back on bidding-or even boycott the auction-to preserve their profit margin, and only lower-cost incumbents bid to win. These results are strikingly different from the usual open-descending auction analysis where all bidders are fully qualified and bidding to win is always a dominant strategy. We test our analytical results in the laboratory, with human subjects. We find that qualitatively our theoretical predictions hold up quite well, although incumbent suppliers bid somewhat more aggressively than the theory predicts, making buyers more inclined to use postauction qualification. © 2012 INFORMS.