A Laboratory Investigation of Rank Feedback in Procurement Auctions

A popular procurement auction format is one in which bidders compete during a live auction event but observe only the rank of their own bid and not the price bids of their competitors. We investigate the performance of auctions with rank feedback in a simple setting for which analytical benchmarks are readily available. We test these benchmarks in the laboratory by comparing the performance of auctions with rank‐based feedback to auctions with full‐price feedback as well as to auctions with no price feedback (sealed‐bid auctions). When bidders are risk‐neutral expected‐profit maximizers, the buyer's expected costs should be the same under rank and full‐price feedback; moreover, expected buyer costs should be the same as in a sealed‐bid auction. However, when we test this theoretical equality in a controlled laboratory setting we find that, consistent with practitioners' beliefs but contrary to our model, rank feedback results in lower average prices than full‐price feedback. We identify two behavioral reasons for the difference. The first explanation is based on the similarity of the bidders' problem in a sealed‐bid first‐price auction and an open‐bid auction with rank feedback. The second explanation incorporates the use of jump bids motivated by bidder impatience.