Sophisticated Bidders in beauty-context auctions (R&R to American Economic Journal: Microeconomics)(2014)
In this paper, we study bidding behavior by firms in beauty-contest auctions, i.e. auctions in which the winning bid is the one which gets closest to some function (average) of all submitted bids. Using a dataset on public procurement beauty-contest auctions in Italy and exploiting a change in the auction format, we show that firms’ observed bidding behavior departs from equilibrium and can be predicted by an index of sophistication, which captures the firms’ accumulated capacity of bidding well (i.e., close to optimality) in the past. We show that our empirical evidence is consistent with a Cognitive Hierarchy model of bidders’ behavior. We also investigate whether and how firms learn to think and bid strategically through experience.
- cognitive hierarchy; auctions; beauty-contest; public procurement.
Publication DateFall September 23, 2014
Citation InformationStefano Galavotti, Luigi Moretti and Paola Valbonesi. "Sophisticated Bidders in beauty-context auctions (R&R to American Economic Journal: Microeconomics)" (2014)
Available at: http://works.bepress.com/paola_valbonesi/32/