A Study of Participation in Dynamic Auctions

We study participation and bidding decisions in repeated Michigan Department of Transportation procurement auctions. The key finding is that dynamic linkages in auctions exist in the participation stage of the game. As a result, with forward looking bidders we find that the sequencing of contracts by size can be used to influence competition within an auction. To fully understand the extent of these effects on auction outcomes, we construct and estimate a dynamic asymmetric auction model with endogenous participation and forward-looking bidders. We then quantify the level of inefficiency under the current auction rules and consider how the sequencing of heterogeneous contracts affects participation. ∗I would like to thank Martin Pesendorfer and Philipp Schmidt-Dengler for invaluable guidance and advice. I am also grateful to Phil Haile for very helpful discussions and useful suggestions for policy experiments and Robert Miller, Pasquale Schiraldi and Howard Smith for detailed conversations. I would also like to thank Victor Ortego-Marti, Sorawoot Srisuma and Dimitri Szerman for helpful discussions. Special thanks to Sue Powers at the Michigan Department of Transportation for providing me with the data.