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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 (2012) The CMS Auction: Experimental Studies of a Median-Bid Procurement Auction with Nonbinding Bids. Quarterly Journal of Economics, 127 (2). pp. 793-827. ISSN 0033-5533. doi:10.1093/qje/qjs013.

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We report on the experimental results of simple auctions with (i) a median-bid pricing rule and (ii) nonbinding bids (winning bids can be withdrawn)—the two central pillars of the competitive bidding program designed by the Centers for Medicare and Medicaid Services (CMS).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:Article
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URLURL TypeDescription Science Working Paper 11346
Additional Information:© 2012 The Author(s). Published by Oxford University Press, on the behalf of President and Fellows of Harvard College. Advance Access publication on April 6, 2012. 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 also benefited from the comments of Mark Isaac, Tim Salmon, and anonymous referees. 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. Originally released as Social Science Working paper 1346 (April 2011).
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Gordon and Betty Moore FoundationUNSPECIFIED
Issue or Number:2
Classification Code:JEL: D01, D02, D03, D04, D44
Record Number:CaltechAUTHORS:20191023-142959335
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:99412
Deposited By: Katherine Johnson
Deposited On:23 Oct 2019 21:40
Last Modified:16 Nov 2021 17:46

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