The Handbook of Behavioral Operations

15Behavioral Research in Competitive Bidding and Auction Design

Wedad Elmaghraby¹ and Elena Katok²

¹ Robert H. Smith School of Business, University of Maryland, College Park, MD, USA

² Naveen Jindal School of Management, University of Texas at Dallas, Richardson, TX, USA

15.1 Overview of Behavioral Operations Research on Auctions

Critical to the efficient and effective functioning of supply chains are procurement relationships, and key to understanding procurement relationships is the behavior of supply chain partners as they forge new relationships in a competitive landscape. Supplier selection needs to leverage competition in order to obtain a favorable price while at the same time inducing collaboration between buyers and sellers when complete contracts cannot be written. Auctions are one key vehicle for aiding buyers as they navigate the supplier selection process and design their procurement mechanism.

In the simplest of settings, a supplier can be selected via a price‐only‐based mechanism, and which supplier to select can be determined by an auction. This review starts with a short summary of auction basics in Section 15.1.1, followed by a summary of the main behavioral results on forward auctions gained from laboratory experiments in Section 15.2. However, in a multitude of settings, price may not be the only, or even the most important, issue when selecting a supplier. Therefore, procurement auctions usually do not determine winners based on price considerations alone ...