Reputation and mechanism choice in procurement auctions : an experiment

We experimentally study the role of reputation in procurement using two common mechanisms: price-based and buyer-determined auctions. While buyers are bound to buy from the lowest bidder in price-based auctions, they can choose between bidders in buyer-determined auctions. Only in the latter buyers can consider the reputation of bidders. We find that bidders supply higher quality in buyer-determined auctions leading to higher market efficiencies in these auctions. Accordingly, buyers prefer the buyer-determined auction over the price-based auction, while only half of the bidders do so. A more detailed analysis of buyers’ and bidders’ behavior and profits provides insights into their mechanism choice. -- Buyer-determined and price-based procurement ; reputation information ; auction choice ; experimental economics