Research Papers in Economics, Department of Economics, Stockholm University
Procurement and Information Feedback
() and Uri Gneezy
Abstract: A government that regularly procures the services of
construction companies wants to minimize its costs. The instrument it can
use is the level of information feedback given to the firms in the market.
Theoretically, the competition between firms is supposed to drive prices to
the lowest possibility, independently of the information feedback.
design an experiment in which firms participate in a first price sealed-bid
auction. Interaction takes place in 10 periods according to a random
matching mechanism, and we control for the level of information feedback
firms receive after each period. It turns out that when firms are informed
about the losing bids in previous periods, prices are higher than the
theoretical prediction. However, when firms do not receive this information
prices converge towards the theoretical prediction. We suggest that
aphenomenon of price signaling may be important for explaining these
Keywords: Procurement auction; experiment; information feedback; price signaling; (follow links to similar papers)
JEL-Codes: C92; H57; L13; (follow links to similar papers)
23 pages, December 20, 1999
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