Procuring Commodities: First Price Sealed Bid or English Auction?

31 Pages Posted: 25 May 2010

Multiple version iconThere are 2 versions of this paper

Date Written: May 24, 2010


I use laboratory experiments to examine the relative performance of the English auction (EA) and the first price sealed bid auction (FPA) when procuring a commodity. The mean and variance of prices are lower in the FPA than in the EA. Bids and prices in EA agree with game theoretic predictions while they don’t in the FPA. To resolve these deviations found in the FPA, I consider a mixture model with three bidding rules: constant absolute mark-up, constant percentage mark-up, and strategic best response. A dynamic specification is estimated as a hidden Markov model. Initially about three quarters of the subjects are strategic bidders, but over time the number of strategic bidders falls to below sixty-five percent. There is a corresponding growth in those who bid a constant absolute mark-up above realized cost. This model provides an explanation of the dynamics of the mean and variance of price.

Keywords: procurement auction, experiment, hidden Markov model

JEL Classification: C92, D44, C33

Suggested Citation

Shachat, Jason, Procuring Commodities: First Price Sealed Bid or English Auction? (May 24, 2010). Available at SSRN: or

Jason Shachat (Contact Author)

Durham University ( email )

Durham University Business School
Mill Hill Lane
Durham, Fujian DH1 3LB
United Kingdom

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