Friday, October 4, 2013
Vivek Bhattacharya, James W. Roberts (Duke), and Andrew Sweeting (Duke) discuss Regulating Bidder Participation in Auctions.
ABSTRACT: Regulating bidder participation in auctions can potentially increase efficiency compared to standard auction formats with free entry. We show that the relative performance of two such mechanisms, a standard first-price auction with free entry and an entry rights auction, depends non-monotonically on the precision of information that bidders have about their costs prior to deciding whether to participate in a mechanism. As an empirical application, we estimate parameters from first-price auctions with free entry for bridge-building contracts in Oklahoma and Texas and predict that an entry rights auction increases efficiency and reduces procurement costs significantly.