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Research Program on Auctions and Procurements Design

Program Director: Joris Pinkse
Members: Kalyan Chatterjee, Kala Krishna, Vijay Krishna and Robert C. Marshall.

A substantial proportion of U.S. economic activity occurs via auctions and procurements involving both the private and public sectors. Following the inception of the internet, business-to-business auctions have known a tremendous development. Economists have made significant contributions over the past twenty years with regard to the design of auctions and procurements. In turn, the diversity of auction and procurement environments has prompted important theoretical and applied developments. In particular, our faculty are working on important issues such as whether the seller/buyer should restrict resale opportunities that can take place after the auction or whether they should split the lots to create more (sequential) auctions. For every question that is addressed, various settings need to be carefully studied. For instance, some auction designs may provide a larger revenue (or similarly a lower cost when considering a procurement) when bidders are financially constrained or when bidders' entry is taken into account. Auction and procurement designs involve basic rules such as ascending or sealed-bid auctions, the use of reserve prices, and the announcement of information regarding the value of the good. The ordering of the lots in terms of value in a sequence of auctions is a crucial issue to generate more revenue. Another related issue concerns the uncertainty of future production.

As such, our researchers are able to provide practical responses to private and public institutions that face important choices when designing or participating in auctions and procurements. In parallel to these important developments, the economic profession has been interested in confronting these results with data, to test the validity of such results and to quantify the key parameters in auctions and procurements. The past ten years have witnessed important developments in the empirical analysis of auction data involving natural resources, public procurements and various other products. In particular, construction procurements have shown that firms tend to differ significantly because of the large transportation costs of their equipment. Such differences among firms can be exploited by the auctioneer by changing the procurement rules. As such, our researchers can quantify the effects of competition in auctions and procurements and advise private and public institutions on how to exploit such competition.