Essays in auctions and information.

Abstract

This dissertation investigates the impact of information release in auctions and the change in auction organization on participant behavior. The first two essays examine how the release of information affects the aggressiveness of bidding in highway contract procurement auctions. The last study examines how changes in the auction format impacts bidding behavior and state revenue. All three essays utilize data obtained from the Oklahoma Department of Transportation (ODOT) on highway procurement auctions, let from January 1997 through November 2003.

The last essay in chapter 5 examines how a specific change in the bid letting procedures affects bidding. Before April 2002, projects were auctioned off in both a morning and afternoon session (a sequential auction format). The results of the morning session were announced before the afternoon session bids were due. In March 2002 the department changed its auction format to a single session or simultaneous format. This paper compares the bidding behavior and seller revenue between the simultaneous and sequential auction formats. The results indicate more aggressive bidding behavior after the policy change occurred. Bidders bidding on multiple projects bid more aggressively in the simultaneous auction format. The results do not provide consistent supportive evidence to the theories that compare the revenue performance of the two auction formats. (Abstract shortened by UMI.)

The second essay in chapter 4 examines information release in auctions but in a different situation. In ODOT auctions, a significant number of projects fail to be auctioned off the first time. These projects are subsequently re-auctioned off at a later date. For these auctions, potential bidders can observe the results of the first round of bidding for a project. I examine the difference in bidding between the first and second round auctions. The results indicate bidding appears to be only modestly affected by such information release.

The first essay in chapter 3 examines the impact of a policy change by ODOT on the bidding behavior of firms participating in the auctions. In January 2000, the ODOT changed its policy regarding the release of the state's engineering estimate. Prior to that date, the state only released the engineering estimate after the bids were opened. The policy change allowed for the release of the state's engineering cost estimate to potential bidders prior to the bid letting. This essay empirically examines the response of auction participants to this change in policy. Using data on bids and winning bids, the paper shows that the release of the additional information results in more aggressive bidding. These results are further confirmed by the analysis conducted pooling Oklahoma and Texas procurement auction data. In Texas, bidders are aware of the engineering cost estimate pre-bid letting during the entire sample period. The comparison between Oklahoma and Texas indicates a significant decline in bids in Oklahoma after the information release. This study concludes that this decrease in the level of bids is consistent with predictions of the theoretical models.