Procurement Experiments with Unknown Costs of Quality

16 Pages Posted: 12 Jun 2006

See all articles by Werner Guth

Werner Guth

Max Planck Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Radosveta Ivanova-Stenzel

Technische Universität Berlin (TU Berlin)

Sabine Kröger

Université Laval - Département d'Économique

Abstract

We experimentally examine the efficiency and profitability of two different procurement auctions allowing for quality differences across products. We compare the vector auction with more competition on the sellers' side with a half-auction, reflecting actual procurement practice - an auction for the cheaper variant and bargaining with the contractor about the additional cost of the better quality variant. Our main hypothesis, that buyers are better off when using the vector auction instead of the half-auction, is confirmed when quality differences of variants are large and the uncertainty of the cost difference is also large.

Suggested Citation

Güth, Werner and Ivanova-Stenzel, Radosveta and Kroger, Sabine, Procurement Experiments with Unknown Costs of Quality. Pacific Economic Review, Vol. 11, No. 2, pp. 133-148, June 2006. Available at SSRN: https://ssrn.com/abstract=906912 or http://dx.doi.org/10.1111/j.1468-0106.2006.00306.x

Werner Güth (Contact Author)

Max Planck Institute of Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Radosveta Ivanova-Stenzel

Technische Universität Berlin (TU Berlin) ( email )

Straße des 17. Juni 135
Berlin, 10623
Germany

Sabine Kroger

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada

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