PROCUREMENT EXPERIMENTS WITH UNKNOWN COSTS OF QUALITY

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. Copyright 2006 Blackwell Publishing Ltd