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A Multinomial Logit Framework to Estimate Bid Shading in Procurement Auctions: Application to Cattle Sales in the Texas Panhandle

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Abstract

We develop an empirical methodology based upon multinomial probability models to estimate the magnitude of bid shading in cattle procurement in the Texas Panhandle region. The methodology works well in settings where data allow a good estimation of a bidder’s probability of winning, but the approach does not rely upon the bidding process following any particular structural framework or on the existence of a control group. Estimated markdowns of price from the competitive level are in the range of 5–10% and are somewhat larger than estimates of oligopsony markdowns from previous studies of cattle procurement in the U.S.

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Authors and Affiliations

  1. Department of Agricultural Economics, Kansas State University, Manhattan, KS, 66506

    John M. Crespi

  2. Department of Agricultural and Resource Economics, University of California, Davis, CA, 95616

    Richard J. Sexton

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  1. John M. Crespi
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  2. Richard J. Sexton
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Correspondence to John M. Crespi.

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Crespi, J.M., Sexton, R.J. A Multinomial Logit Framework to Estimate Bid Shading in Procurement Auctions: Application to Cattle Sales in the Texas Panhandle. Rev Ind Organ 27, 253–278 (2005). https://doi.org/10.1007/s11151-005-1755-5

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