Katok, Elena

Permanent URI for this collectionhttps://hdl.handle.net/10735.1/3184

Elena Katok is Professor of Operations Management and holds an Ashbel Smith professorship. Her research interests are in market design and strategic procurement and in behavioral operations management. She also serves as a co-director of the Center and Laboratory for Behavioral Operations and Economics.

Learn more about Dr. Katok on her Home, Endowed Professorships and Chairs, and her Research Explorer pages.

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    Relationship-Specific Investment and Hold-Up Problems in Supply Chains: Theory and Experiments
    (Springer, 2018-07-20) Haruvy, Ernan; Katok, Elena; Ma, Zhongwen; Sethi, Suresh; 0000-0002-7037-7896 (Katok, E); Haruvy, Ernan; Katok, Elena; Ma, Zhongwen; Sethi, Suresh
    Supply chains today routinely use third parties for many strategic activities, such as manufacturing, R&D, or software development. These activities often include relationship-specific investment on the part of the vendor, while final outcomes can be uncertain. Therefore, writing complete contracts for such arrangements is often not feasible, but incomplete contracts, especially when relationship-specific investment is required, may leave the supplier vulnerable to a version of the “hold-up problem,” which is known to result in sub-optimal levels of investment. We model the phenomenon as a sequential move game with asymmetric information. Absent behavioral considerations, the unique Perfect Bayesian Equilibrium implies zero investment. However, with social preferences, the hold-up problem may be mitigated. We propose a model that incorporates social preferences and random errors, and solve for the equilibrium. In addition, we look at reputation and find it to be effective for increasing investment. We conduct laboratory experiments with human subjects and find that a model with social preferences and random errors organizes our data well. © 2018, The Author(s).
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    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.
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    Split-Award Auctions: Insights from Theory and Experiments
    (INFORMS, 2018-03-28) Chaturvedi, Aadhaar; Katok, Elena; Beil, Damian R.; 0000-0002-7037-7896 (Katok, E); Katok, Elena
    We investigate procurement in a setting in which the buyer is bound by sourcing rules. Sourcing rules may limit the minimum and maximum amounts of business that can be awarded to a single supplier or dictate the minimum number of suppliers who are awarded business, thus necessitating split awards. The buyer announces the splits before the auction, and suppliers bid accordingly. We consider two auction formats: the sealed-bid first-price auction, and a version of the open-bid descending-price auction. We characterize the suppliers' symmetric equilibrium bidding strategy for both formats and find that the two formats yield the same expected buyer's cost. We characterize the cost of multisourcing, showing among other things that it is always costly for the buyer to split its award among more suppliers if the suppliers' costs are regularly distributed, but that doing so can actually reduce the buyer's expected auction payment if the suppliers' costs are not regularly distributed. The results from controlled laboratory experiments, involving human subjects, indicate that expected cost equivalence fails when costs are regularly distributed because suppliers bid more aggressively in the sealed-bid auction. However, for split-award auctions with nonregularly distributed costs, the sealed-bid prices are actually higher than predicted by theory. We explain these mismatches between observations and theory through a behavioral model based on bidders' aversion to anticipated regret. The experimental results indicate that the theory does a good job of predicting the relationship between the buyer's average cost and the award splits, as well as the cost of multisourcing. Importantly, the experiments confirm that when suppliers' costs come from a nonregular distribution, it may be to the buyer's advantage to diversify the supply base more than is strictly necessitated by sourcing rules.
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    When Does it Pay to Delay Supplier Qualification? Theory and Experiments
    Wan, 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.

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