Abstract:

Truthful revelation of valuations is a dominant strategy in second-price sealed-bid auctions with private-values (Vickrey 1961). However, bidding above the dominant strategy price has persistently been observed in laboratory experiments (Kagel and Levin 1993; Harstad 2000). Harstad (2000) finds that “substantial overbidding by nearly all subjects in second-price auctions persists.” In a recent experimental study of a private-values procurement scenario (Strecker and Seifert 2003), we have analyzed a multi-attribute second-score reverse auction, an adaptation of the Vickrey auction to the multi-attribute case (Milgrom 2000). In contrast to the earlier experimental research mentioned above, our experiment has involved (i) a reverse auction in which a single buyer (bid-taker, auctioneer) solicits bids from multiple suppliers (bidders) and (ii) three-dimensional bids that are evaluated by a (monetary) utility or scoring function modelling the buyer’s preferences with respect to the price and two non-price quality attributes. This auction design awards the contract to the supplier, who has bid the highest utility score. He produces and delivers the object with the qualities offered to the buyer, but is paid a price such that the utility score of the transaction equals the second highest utility score (Vickrey principle).