This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

Sophisticated Bidders in Beauty-Contest Auctions

  • Stefano Galavotti
  • Luigi Moretti
  • Paola Valbonesi
American Economic Journal: Microeconomics
vol. 10, no. 4, November 2018
(pp. 1-26)
Download Full Text PDF

Abstract

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, we show that firms' observed bidding behavior departs from equilibrium and can be predicted by a "sophistication" index, which captures the firms' capacity of bidding 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 bid strategically through experience.

Citation

Galavotti, Stefano, Luigi Moretti, and Paola Valbonesi. 2018. "Sophisticated Bidders in Beauty-Contest Auctions." American Economic Journal: Microeconomics, 10 (4): 1-26. DOI: 10.1257/mic.20150240

Additional Materials

JEL Classification

  • D22 Firm Behavior: Empirical Analysis
  • D44 Auctions
  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • H57 National Government Expenditures and Related Policies: Procurement
  • L12 Monopoly; Monopolization Strategies
There are no comments for this article.
Login to Comment