Efficiency of the Reversed First-Price Sealed Bid Auctions with a Dynamic Run-Off. Results of Experiments

Abstract

In case of the private procurement auctions the entrepreneurs are not forced
to limit themselves to the standard auction rules, and in practice one can observe
many hybrid or quasi-auction mechanisms spontaneously introduced. The paper
analyzes two of them, which start as a first-price sealed-bid auction, followed by
a run-off in a form of an English auction, and which differ by the transparency of
rules concerning the initiation of the second stage. The focus of the paper is on
the analysis of the price and allocative efficiency of these mechanisms, in order
to determine whether they can serve as an alternative to the standard auction
rules. Theoretical analyses are followed by the laboratory experiments, which
demonstrate that the mechanisms under study are characterized by both high
price and allocative efficiency, and therefore could be considered an interesting
substitute of the standard auction rules.