# Bid pooling in reverse multi-unit Dutch auctions: an experimental investigation

- 251 Downloads
- 1 Citations

## Abstract

In this article we experimentally investigate reverse multi-unit Dutch auctions in which bidders compete to sell their single unit to a buyer who wants to purchase several objects. Our study yields three insights: (i) bids are substantially higher than Nash equilibrium bids predicted by standard economic theory; (ii) these higher-than-predicted prices gradually decline in later periods; and (iii) bid pooling (or simultaneous bidding) is frequently observed—the majority of bidders submit their bids immediately after the first bidder has sold his unit. A model that distinguishes between myopic and sophisticated bidding strategies helps to organize these patterns both on the aggregate and on the individual level.

## Keywords

Bounded rationality Multi-unit auction Procurement Reverse Dutch auction## JEL Classification

D44 D01 C91## References

- Agranov, M., Potamites, E., Schotter, A., & Tergiman, C. (2012). Beliefs and endogenous cognitive levels: An experimental study.
*Games and Economic Behavior*,*75*, 449–463.CrossRefGoogle Scholar - Bosch-Domènech, A., Montalvo, J. G., Nagel, R., & Satorra, A. (2002). One, two, (three), infinity, \({\ldots }\): Newspaper and lab beauty-contest experiments.
*American Economic Review*,*92*, 1687–1701.CrossRefGoogle Scholar - Brunnermeier, M. K., & Morgan, J. (2010). Clock games: Theory and experiments.
*Games and Economic Behavior*,*68*, 532–550.CrossRefGoogle Scholar - Bulow, J., & Klemperer, P. (1994). Rational frenzies and crashes.
*Journal of Political Economy*,*102*, 1–23.CrossRefGoogle Scholar - Camerer, C. F., Ho, T. H., & Chong, J. K. (2004). A cognitive hierarchy model of games.
*Quarterly Journal of Economics*,*119*, 861–898.CrossRefGoogle Scholar - Cassady, R. (1967).
*Auctions and Auctioneering*. Berkeley: University of California Press.Google Scholar - Cooper, D. J., & Fang, H. (2008). Understanding overbidding in second price auctions: An experimental study.
*Economic Journal*,*118*, 1572–1595.CrossRefGoogle Scholar - Costa-Gomes, M. A., & Crawford, V. P. (2006). Cognition and behavior in two-person guessing games: An experimental study.
*American Economic Review*,*96*, 1737–1768.CrossRefGoogle Scholar - Cox, J. C., & James, D. (2012). Clocks and trees: Isomorphic Dutch auctions and centipede games.
*Econometrica*,*80*, 883–903.CrossRefGoogle Scholar - Crawford, V. P., & Iriberri, N. (2007). Level-\(k\) auctions: Can a nonequilibrium model of strategic thinking explain the winner’s curse and overbidding in private-value auctions?
*Econometrica*,*75*, 1721–1770.CrossRefGoogle Scholar - Crawford, V. P., Costa-Gomes, M. A., & Iriberri, N. (2013). Structural models of non-equilibrium strategic thinking: Theory, evidence, and applications.
*Journal of Economic Literature*,*51*, 5–62.CrossRefGoogle Scholar - Duffy, J., & Nagel, R. (1997). On the robustness of behaviour in experimental ‘beauty contest’ games.
*Economic Journal*,*107*, 1684–1700.CrossRefGoogle Scholar - Dufwenberg, M., & Gneezy, U. (2000). Price competition and market concentration: An experimental study.
*International Journal of Industrial Organization*,*18*, 7–22.CrossRefGoogle Scholar - Fischbacher, U. (2007). z-Tree: Zurich toolbox for ready-made economic experiments.
*Experimental Economics*,*10*, 171–178.CrossRefGoogle Scholar - Fonseca, M. A., & Normann, H.-T. (2012). Explicit vs. tacit collusion–The impact of communication in oligopoly experiments.
*European Economic Review*,*56*, 1759–1772.CrossRefGoogle Scholar - Fonseca, M. A., & Normann, H.-T. (2013). Excess capacity and pricing in Bertrand-Edgeworth markets: Experimental evidence.
*Journal of Institutional and Theoretical Economics*,*169*, 199–228.CrossRefGoogle Scholar - Georganas, S. (2011). English auctions with resale: An experimental study.
*Games and Economic Behavior*,*73*, 147–166.CrossRefGoogle Scholar - Georganas, S., Healy, P. J., & Weber, R. A. (2015). On the persistence of strategic sophistication.
*Journal of Economic Theory*,*159*, 369–400.CrossRefGoogle Scholar - Gill, D., & Prowse, V. (forthcoming) Cognitive ability, character skills, and learning to play equilibrium: A level-\(k\) analysis.
*Journal of Political Economy*.Google Scholar - Goeree, J. K., Offerman, T., & Schram, A. (2006). Using first-price auctions to sell heterogeneous licenses.
*International Journal of Industrial Organization*,*24*, 555–581.CrossRefGoogle Scholar - Greiner, B. (2004). An online recruitment system for economic experiments. In K. Kremer & V. Macho (Eds.),
*Forschung und wissenschaftliches Rechnen 2003, GWDG Bericht 63*(pp. 79–93). Göttingen: Gesellschaft für Wissenschaftliche Datenverarbeitung.Google Scholar - Gretschko, V., Rasch, A., & Wambach, A. (2014). On the multi-unit descending auction.
*Journal of Mathematical Economics*,*50*, 79–85.CrossRefGoogle Scholar - Haruvy, E., & Katok, E. (2013). Increasing revenue by decreasing information in procurement auctions.
*Production and Operations Management*,*22*, 19–35.CrossRefGoogle Scholar - Healy, P. J., Lewis, M., & Oprea, R. (2013). Edgeworth Cycles and Market Structure: A Laboratory Test. Working paper.Google Scholar
- Heymann, D., Kawamura, E., Perazzo, R., & Zimmermann, M. G. (2014). Behavioral heuristics and market patterns in a Bertrand-Edgeworth game.
*Journal of Economic Behavior & Organization*,*105*, 124–139.CrossRefGoogle Scholar - Hinloopen, J., & Soetevent, A. R. (2008). Laboratory evidence on the effectiveness of corporate leniency programs.
*RAND Journal of Economics*,*39*, 607–616.CrossRefGoogle Scholar - Ho, T. H., & Su, X. (2013). A dynamic level-\(k\) model in sequential games.
*Management Science*,*59*, 452–469.CrossRefGoogle Scholar - Ho, T. H., Camerer, C., & Weigelt, K. (1998). Iterated dominance and iterated best response in experimental “\(p\)-beauty contests”.
*American Economic Review*,*88*, 947–969.Google Scholar - Ivanov, A., Levin, D., & Niederle, M. (2010). Can relaxation of beliefs rationalize the winner’s curse? An experimental study.
*Econometrica*,*78*, 1435–1452.CrossRefGoogle Scholar - Jacobs, M., & Requate T. (2016). Demand Rationing in Bertrand-Edgeworth Markets with Fixed Capacities: an Experiment. Working paper.Google Scholar
- Katok, E., & Roth, A. E. (2004). Auctions of homogeneous goods with increasing returns: Experimental comparison of alternative “Dutch” auctions.
*Management Science*,*50*, 1044–1063.CrossRefGoogle Scholar - Kirchkamp, O., & Reiss, J. P. (2011). Out-of-equilibrium bids in first-price auctions: Wrong expectations or wrong bids.
*Economic Journal*,*121*, 1361–1397.CrossRefGoogle Scholar - Kirchkamp, O., & Reiss, J. P. (2014). Heterogeneous Bids in Auctions with Rational and Boundedly Rational Bidders—Theory and Experiment. Working paper.Google Scholar
- Kocher, M. G., & Sutter, M. (2005). The decision maker matters: Individual versus group behaviour in experimental beauty-contest games.
*Economic Journal*,*115*, 200–223.CrossRefGoogle Scholar - Kruse, J. B., Rassenti, S., Reynolds, S. S., & Smith, V. L. (1994). Bertrand-Edgeworth competition in experimental markets.
*Econometrica*,*62*, 343–371.CrossRefGoogle Scholar - Kwasnica, A. M., & Sherstyuk, K. (2007). Collusion and equilibrium selection in auctions.
*Economic Journal*,*117*, 120–145.CrossRefGoogle Scholar - Leufkens, K., & Peeters, R. (2011). Price dynamics and collusion under short-run price commitments.
*International Journal of Industrial Organization*,*29*, 134–153.CrossRefGoogle Scholar - Levitt, S. D., List, J. A., & Sadoff, S. E. (2011). Checkmate: Exploring backward induction among chess players.
*American Economic Review*,*101*, 975–990.CrossRefGoogle Scholar - Martínez-Pardina, I., & Romeu, A. (2011). The case for multi-unit single-run descending-price auctions.
*Economics Letters*,*113*, 310–313.CrossRefGoogle Scholar - Maskin, E., & Tirole, J. (1988). A theory of dynamic oligopoly, II: Price competition, kinked demand curves, and Edgeworth cycles.
*Econometrica*,*56*, 571–599.CrossRefGoogle Scholar - McCabe, K. A., Rassenti, S. J., & Smith, V. L. (1990). Auction institutional design: Theory and behavior of simultaneous multiple-unit generalizations of the Dutch and English auctions.
*American Economic Review*,*80*, 1276–1283.Google Scholar - McKelvey, R. D., & Palfrey, T. R. (1992). An experimental study of the centipede game.
*Econometrica*,*60*, 803–36.CrossRefGoogle Scholar - Muren, A., & Pyddoke, R. (2006). Collusion without communication.
*Information Economics and Policy*,*18*, 43–54.CrossRefGoogle Scholar - Murphy, R., Rapoport, A., & Parco, J. (2006). The breakdown of cooperation in iterative real-time trust dilemmas.
*Experimental Economics*,*9*, 147–166.CrossRefGoogle Scholar - Palacios-Huerta, I., & Volij, O. (2009). Field centipedes.
*American Economic Review*,*99*, 1619–1635.CrossRefGoogle Scholar - Penczynski, S. P. (2011).
*Strategic Thinking: The Influence of the Game*. Working Paper.Google Scholar - Rapoport, A., Stein, W. E., Parco, J. E., & Nicholas, T. E. (2003). Equilibrium play and adaptive learning in a three-person centipede game.
*Games and Economic Behavior*,*43*, 239–265.CrossRefGoogle Scholar - Romeu, A. (2000).
*Some Applications of Simulation-Based and Semi-Nonparametric Estimation Methods in Microeconometrics*. PhD Dissertation, Universitat Autónoma de Barcelona.Google Scholar - Selten, R. (1975). Reexamination of the perfectness concept for equilibrium points in extensive games.
*International Journal of Game Theory*,*4*, 25–55.CrossRefGoogle Scholar - Shachat, J., & Wei, L. (2012). Procuring commodities: First-price sealed-bid or English auctions?
*Marketing Science*,*31*, 317–333.CrossRefGoogle Scholar - Sherstyuk, K. (1999). Collusion without conspiracy: An experimental study of one-sided auctions.
*Experimental Economics*,*2*, 59–75.CrossRefGoogle Scholar - Sherstyuk, K. (2002). Collusion in private value ascending price auctions.
*Journal of Economic Behavior & Organization*,*48*, 177–195.CrossRefGoogle Scholar - Simon, J. L. (1968). An almost practical solution to airline overbooking.
*Journal of Transport Economics and Policy*,*2*, 201–202.Google Scholar - Simon, J. L. (1994). Origins of the airline oversales auction system.
*Regulation*,*17*, 48–52.Google Scholar - Suetens, S., & Potters, J. (2007). Bertrand colludes more than Cournot.
*Experimental Economics*,*10*, 71–77.CrossRefGoogle Scholar