Scandinavian Working Papers in Economics
Research Papers in Economics,
Stockholm University, Department of Economics
No 2000:2: Procurement and Information Feedback
Martin Dufwenberg () and Uri Gneezy ()
Additional contact information
Martin Dufwenberg: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Uri Gneezy: Haifa University
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.
We 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 results.
Keywords: Procurement auction; experiment; information feedback; price signaling
23 pages, December 20, 1999
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wp00_02.pdf
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