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The CMS Auction: Experimental Studies of a Median-Bid Procurement Auction with Nonbinding Bids

Merlob, Brian and Plott, Charles R. and Zhang, Yuanjun (2011) The CMS Auction: Experimental Studies of a Median-Bid Procurement Auction with Nonbinding Bids. Social Science Working Paper, 1346. California Institute of Technology , Pasadena, CA.

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We report on the experimental results of simple auctions with (i) a median-bid pricing rule and (ii) non-binding bids (winning bids can be withdrawn) – the two central pillars of the competitive bidding program designed by the Centers for Medicare & Medicaid Services (CMS). Comparisons between the performance of the CMS auction and the performance of the excluded-bid auction reveal the problematic nature of the CMS auction. The CMS auction fails to generate competitive prices of goods and fails to satisfy demand. In all proposed efficiency measures, we find the excluded-bid auction significantly outperforms the CMS auction.

Item Type:Report or Paper (Working Paper)
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URLURL TypeDescription ItemLater version published in Quarterly Journal of Economics
Additional Information:The financial support of the Gordon and Betty Moore Foundation is gratefully acknowledged. Financial support for the sessions conducted jointly between Caltech and the University of Maryland was provided by an NSF grant to Peter Cramton and by the Gordon and Betty Moore Foundation. Kathryn Peters and Andre Pradhana contributed to the conduct and analysis of the experiments. The CMS auction was brought to our attention by Peter Cramton who has been central to our understanding of the auction and facilitated the experimental sessions conducted jointly between the Caltech Laboratory for Experimental Economics and Political Science (EEPS) and the University of Maryland Experimental Economics Laboratory. Our understanding of the Nash equilibria of the CMS auction benefited from the comments and writings of Brett Katzman. We thank Erkut Ozbay who organized the experimental laboratory at the University of Maryland and Kristian Lopez-Vargas who joined the experimental team for conducting the experiments during the joint Caltech and University of Maryland experimental sessions.
Group:Social Science Working Papers
Funding AgencyGrant Number
Gordon and Betty Moore FoundationUNSPECIFIED
Classification Code:JEL: D01, D02, D03, D04, D44
Record Number:CaltechAUTHORS:20171102-163925799
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82922
Deposited By: Jacquelyn Bussone
Deposited On:03 Nov 2017 17:56
Last Modified:03 Nov 2017 18:01

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