Differentiated Bidders and Bidding Behavior in Procurement Auctions

Ernan Haruvy, Associate Professor of Marketing, School of Management, University of Texas at Dallas, and Sandy Jap, Professor of Marketing, Goizueta Business School, Emory University

Journal of Marketing Research, Vol. 50, No. 2, April 2013, pp. 241-258

Abstract: Why do bidders in buyer-determined procurement auctions often bid above the lowest observed bid over the course of the auction? Are such bidding patterns meaningful? In this research, the authors propose that because bidders are differentiated in their value to the buyer and competition in these auctions is anonymous, bidders infer their potential quality advantage or disadvantage through their observation of competitive bids and incorporate this information into their responses and price bids. Using point-by-point bid data from two industrial procurement auctions, the authors show that bidders appear to be making inferences about their own implied quality differentials and adjust their bidding strategies and bidding aggression accordingly. Specifically, they find that high-quality bidders tend to be more aggressive in bidding against potentially higher-quality competition and less aggressive when bidding against potentially lower-quality competition. In contrast, low-quality bidders appear aggressive regardless of their implied quality in relation to the competition. The authors conclude with a discussion of implications for management and auction design.

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