Research
Publications
Social norms, sanctions, and conditional entry in markets with externalities: Evidence from an artefactual field experiment
Co-Authors: Tobias Riehm, Philippe Gillen, Vitali Gretschko, and Peter WernerMartin Pollrich
Journal of Public Economics, 2022, Vol. 212
In an artefactual field experiment with a large and heterogeneous population sample, we test the implications of social norms for market interactions associated with negative real-world externalities. We run large stylized markets in which sellers and buyers decide whether to enter the market and how much to bid for experimental coupons. Trading leads to profits for sellers and buyers but at the same time destroys donations for a good cause. Calculated over all our treatments, we observe that two-thirds of the participants refuse to trade. Eliciting a controlled measure for conditional moral behavior in one treatment, we find that roughly a quarter of potential traders make their decisions contingent on the decisions of others, indicating that the desire to conform to social norms affects trading decisions in markets with negative externalities. If observers can sanction traders, we find that more than 80% of them are willing to incur personal costs to sanction trading, thus enforcing a social norm for moral behavior.
Information design in sequential procurement
Co-Authors: Vitali Gretschko and Martin Pollrich
Games and Economic Behavior, 2022, Vol. 135
We analyze the problem of a buyer who chooses a supplier for a two-period production project. The buyer lacks the commitment not to renegotiate the contractual terms in the second period. The prospect of renegotiation makes suppliers cautious about the information revealed in period one. We derive the revenue-maximizing mechanism and highlight the role of information design for its implementation. We show that the buyer can achieve the full commitment surplus with the appropriate information design even without commitment.
Co-Authors: Helene Mass, Vitali Gretschko, and Achim Wambach
American Economic Journal: Microeconomics, 2020, Vol. 12 (3)
Procurement regulation aimed at curbing discrimination requires equal treatment of sellers. However, Deb and Pai (2017) show that such regulation imposes virtually no restrictions on the ability to discriminate. We propose a simple rule— imitation perfection— that restricts discrimination significantly. It ensures that in every equilibrium bidders with the same valuation distribution and the same valuation earn the same expected utility. If all bidders are homogeneous, revenue and social surplus optimal auctions consistent with imitation perfection exist. For heterogeneous bidders, however, it is incompatible with revenue and social surplus optimization. Thus, a trade-off between non-discrimination and optimality exists.
Co-Authors: Elena Katok and Achim Wambach
Management Science, 2019, Vol. 65 (11)
When complex procurement projects are conducted, it is often not possible to write complete contracts. As a consequence, the relationship between buyer and supplier is important for the success of the project. In this paper we investigate the claim that auctions in procurement can be detrimental for the buyer–supplier relationship, which is in line with the observation that reverse auctions are less frequently conducted if projects are complex. A poor relationship can result in a decrease in trust on the part of the buyer during the sourcing process and an increase in the supplier’s opportunistic behavior following sourcing. We consider a setting in which the winning supplier decides on the level of quality to provide to the buyer, and we compare a standard reverse auction and a buyer-determined reverse auction, both analytically and in the laboratory. We find that the buyer-determined reverse auction can perform better than the standard reverse auction from both the buyer’s and the suppliers’ perspective. In a buyer-determined reverse auction, it may be optimal for the buyer to select the supplier who submitted a higher bid, which may in turn induce this supplier to deliver higher quality. Standard auctions, however, yield lower prices but reduce cooperation. The degree of trust, as reflected by a larger number of transactions and a higher average efficiency of trade, is significantly higher in buyer-determined reverse auctions. Theoretical reasoning based on other-regarding preferences organizes our data well.
Co-Authors: Elena Katok and Achim Wambach
Management Science, 2016, Vol. 62 (2)
Although binding reverse auctions have attracted a good deal of interest in the academic literature, in practice, dynamic nonbinding reverse auctions are the norm in procurement. In those, suppliers submit price quotes and can respond to quotes of their competitors during a live auction event. However, the lowest quote does not necessarily determine the winner. The buyer decides after the contest, taking further supplier information into account, on who will be awarded the contract. We show, both theoretically and empirically, that this bidding format enables suppliers to collude, thus leading to noncompetitive prices.