Professor Jason Shachat jason.shachat@durham.ac.uk
Professor
How auctioneers set reserve prices in procurement auctions
Shachat, Jason; Tan, Lijia
Authors
Lijia Tan
Abstract
We introduce a behavioral model that effectively predicts auctioneers’ reserve choice patterns in English clock auctions across varying reserve price formats (whether reserve prices are set ex-ante or ex-post auction events), number of bidders and the distribution of suppliers’ costs. In a two-parameter model, which we call Subjective Conditional Probability (SCP), auctioneers have subjective judgement of conditional probabilities. We theoretically show that the SCP explains two intuitive, but sub-optimal, reserve price setting patterns. It predicts and provides rationalizations for ex-ante reserve prices that decrease in the number of bidders and ex-post reserve prices that increase in the realized auction price. We conduct two experiments; one with a uniform cost distribution and another with a left-skewed cost distribution. We validate the SCP model internally and externally by comparing it to a wide range of models, including reduced form linear regression, risk aversion, anticipated regret model, and subjective probability judgement via in-sample and out-of-sample predictions. We conclude that the SCP has strong external validity across a variety of procurement environments.
Citation
Shachat, J., & Tan, L. (2022). How auctioneers set reserve prices in procurement auctions. European Journal of Operational Research, 304(2), 709-728. https://doi.org/10.1016/j.ejor.2022.04.025
| Journal Article Type | Article |
|---|---|
| Acceptance Date | Apr 19, 2022 |
| Online Publication Date | Sep 7, 2022 |
| Publication Date | 2022 |
| Deposit Date | May 11, 2022 |
| Publicly Available Date | Apr 25, 2023 |
| Journal | European Journal of Operational Research |
| Print ISSN | 0377-2217 |
| Publisher | Elsevier |
| Peer Reviewed | Peer Reviewed |
| Volume | 304 |
| Issue | 2 |
| Pages | 709-728 |
| DOI | https://doi.org/10.1016/j.ejor.2022.04.025 |
| Public URL | https://durham-repository.worktribe.com/output/1206452 |
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http://creativecommons.org/licenses/by/4.0/
Copyright Statement
This work is licensed under a Creative Commons Attribution 4.0 International License.
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