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We analyze clients’ contract choices in auctions where Dutch law firms compete for standard cases such as labor disputes for individuals and collecting debts for businesses. In the auctions, lawyers can submit bids with any fee arrangement they prefer, including an hourly rate, a fixed fee, and a ‘mixed fee’: a time-capped fixed fee plus an hourly rate for any additional hours should the case take longer than expected. A game-theoretic analysis of this auction format reveals that clients should accept only fixed-fee bids in equilibrium. We estimate a simultaneous equation model that includes both the client’s and lawyers’ side. Qualitatively in line with our theoretical prediction, we find that clients strongly prefer fixed fees. Our results suggest that selecting a lawyer through an auction may benefit clients who face an incidental legal problem. More generally, our findings tentatively contradict lawyers’ often made argument that hourly rates are in a client’s best interest. ispartof: Review Of Industrial Organization vol:61 issue:2 pages:1-26 status: Published online

In a field experiment, we study the revenue-generating properties of premium auctions. In a premium auction, the runner-up obtains a premium for driving up the price paid by the winner. Previous research, both theoretical and in the lab, has shown that the relative performance of premium auctions compared to standard auction formats is context-specific. In the experiment, we compare two types of premium auctions with the standard Vickrey auction selling high-quality, limited-edition posters in an online auction. We observe that neither premium auction raises higher revenue than the Vickrey auction. Revenue dispersion in the Amsterdam auction, one of the premium auctions, is lower than that in the other two auctions.

This paper studies markets plagued with asymmetric information on the quality of traded goods. In Akerlof's setting, sellers are better informed than buyers. In contrast, we examine cases where buyers are better informed than sellers. This creates an inverse adverse selection problem: the market tends to disappear from the bottom rather than from the top. In contrast to the traditional model, it is the high-value goods (gems) that are traded on the market, rather than the low-value goods (lemons). We refer to this asymmetric information scenario as the “market for gems.” We investigate the consequences of this undisclosed knowledge of hidden qualities — which we refer to as inverse adverse selection — and the reasons why legal theorists have given this form of asymmetric information substantially less consideration. Conventional legal and contractual solutions to the lemons problem are often ineffective in the gems case: the uninformed buyer in a traditional market for lemons experiences the quality of the good he purchased; in a market for gems, instead, the uninformed seller may never know the quality of the good that he sold. We study three alternative solutions to the gems problem — auctions, suppression of information, and inverse warranties — and identify the condition under which each of them is feasible. We then show how the theory sheds light on real-life gems problems arising in the multi-million dollar transactions involving soccer players, artworks, M&As, Hollywood movies, and diamonds.

In a laboratory experiment, we compare two auction mechanisms that determine the sequence of service to queued customers. In the server-initiated auction, the server, when idle, sells the right to be served next to the highest bidding customer in the queue and distributes the proceeds among the remaining customers. We show that this mechanism has an efficient equilibrium. In the customer-initiated auction, new arrivals can sequentially trade places with queued customers. This mechanism does not have an efficient equilibrium. We use two novel experimental protocols to examine the behavioral properties of both auction mechanisms. We find that, on average, the server-initiated auction and the customer-initiated auction perform equally well in terms of efficiency gain. Moreover, participants indicate that they find the server-initiated auction a fairer mechanism than the customer-initiated auction. When voting between the two auctions, participants tended to favor the server-initiated auction. We also find evidence of endowment and sunk-cost effects, which partially explains deviations from standard theory predictions.

In Akerlof's 1970 Market for Lemons, asymmetric information arises because sellers are better informed than buyers. A seller’s informational advantage creates an adverse selection problem. When buyers are better informed than sellers, a mirror-image problem arises. Although both asymmetric information situations lead to inefficiencies in the market, informed buyers are not generally required to disclose positive information to their uninformed sellers. After reviewing the traditional explanations for the different legal treatment of buyers and sellers in asymmetric information situations, we develop a different rationale to explain this difference. Our analysis suggests that rules that do not require buyers to disclose positive information operate as information-forcing, penalty default rules. Informed buyers are not required to disclose their positive information, but uninformed buyers separate themselves from informed buyers, by signaling their lack of private information, leading to an inverse correction of this asymmetric information problem.

In procurement auctions, bidders are usually better informed about technical, financial, or legal aspects of the goods and services procured. Therefore, the buyer may include a dialogue in the procurement procedure which enables the suppliers to reveal information that will help the buyer to better specify the terms of the contract. This paper addresses the question of the value added of letting the sourcing process consist of both an auction and a negotiation stage, theoretically and in a laboratory experiment. Our theoretical results suggest that in a setting where the buyer and the suppliers have aligned interests regarding the terms of the contract, allowing the winning supplier to communicate with the buyer after the auction is beneficial to the buyer compared to no communication and ex-ante communication. In a setting where the buyer and the winning supplier have misaligned interests regarding the terms, the buyer benefits from ex-ante communication relative to no communication and ex-post communication. Our experimental data provide strong evidence for the predictions in the aligned-interest setting. In the misaligned-interest setting, we do not observe significant differences between the three mechanisms. Our experimental findings offer several managerial implications for the appropriate design of sourcing processes.

Using laboratory experiments, we compare the stability of bidding rings in the English auction and the first-price sealed-bid auction in a heterogeneous-value setting. In both a re-matching condition and a fixed-matching condition, we observe that biddings rings are more stable in the English auction than in the first-price sealed-bid auction. In both conditions, the first-price sealed-bid auction dominates the English auction in terms of average revenue and the revenue spread. The English auction outperforms the first-price sealed-bid auction in terms of efficiency.

Competition has been argued to erode socially responsible behavior in markets, suggesting that allowing cartel agreements among firms may promote public interest objectives. We test this idea in a laboratory experiment. Participants playing the role of firms choose between offering a ‘fair’ and an ‘unfair’ good to a consumer participant. When the unfair good is traded, a negative externality is imposed on a third party. We vary whether or not the firms are allowed to coordinate on the type of good they sell – while remaining in price competing. We find that the opportunity to coordinate leads to more coordinated equilibria, but has no significant impact on the fraction of fair goods traded on the market. Instead it polarizes: more of the same good, fair or unfair, is offered in coordination. Irrespective of whether quality coordination between firms is allowed, participants are more likely to trade the fair good, the stronger their third-party preferences are. These findings suggest that both consumer and managerial values are more important drivers of socially responsible behavior than opportunities for firms to coordinate their corporate social responsibility (CSR) activities. We highlight implications for competition policy, where cartels may be exempted on CSR grounds.

Using laboratory experiments, we compare the stability of bidding rings in the first-price sealed-bid auction and the English auction in a heterogeneous-value setting. In both a re-matching condition and a fixed-matching condition, we observe that bidding rings are more stable in the English auction than in the first-price sealed-bid auction. In both conditions, the first-price sealed-bid auction dominates the English auction in terms of average revenue and the revenue spread. The English auction outperforms the first-price sealed-bid auction in terms of efficiency.

Published in 'Games and Economic Behavior' . In the past, many refinements have been proposed to select equilibria in cheap talk games. Usually, these refinements were motivated by a discussion of how rational agents would reason in some particular cheap talk games. In this paper, we propose a new refinement and stability measure that is intended to predict actual behavior in a wide range of cheap talk games. According to our Average Credible Deviation Criterion (ACDC), the stability of an equilibrium is determined by the frequency and size of credible deviations. ACDC organizes the results from several cheap talk experiments in which behavior converged to equilibrium, even in cases where other criteria do not make a prediction.

This chapter illustrates the main lessons using an example from the Dutch practice, namely procurement of welfare-to-work programs. It summarizes the main lessons and argues that the theory remains silent about many practically important questions. The chapter focuses on auctions and beauty contests. In contrast to lotteries and grandfathering, auctions and beauty contests let several suppliers compete for the project, which forces them to offer high quality for a sharp price. The difference between auctions and beauty contests is that in an auction, the winning supplier is selected on the basis of a well-defined rule, whereas in a beauty contest, the selection decision has at least some degree of subjectivity. The chapter discusses several lessons from economic theory that relate to the design of auctions and beauty contests. Although these lessons can be extremely useful for procurement design in practice, several practically important questions remain unanswered.

We study the relative performance of the first-price sealed-bid auction and the second-price sealed-bid auction in a laboratory experiment where bidders can signal information through their bidding behavior to an outside observer. We consider two different information settings: the auctioneer reveals either the identity of the winning bidder only, or she also reveals the winner’s payment to an outside observer. We find that the first-price sealed-bid auction in which the winner’s payment is revealed outperforms the other mechanisms in terms of revenue and efficiency. Our findings may have implications for the design of charity auctions, art auctions, and spectrum auctions.

In a field experiment, we study the revenue-generating properties of premium auctions. In a premium auction, the runner-up obtains a premium for driving up the price paid by the winner. Previous research, both theoretical and in the lab, has shown that the relative performance of premium auctions compared to standard auction formats is context-specific. In the experiment, we compare two types of premium auctions with the standard Vickrey auction selling high-quality, limited-edition posters in an online auction. We observe that neither premium auction raises higher revenue than the Vickrey auction. The variance of the revenue in the Amsterdam auction, one of the premium auctions, is lower than that in the Vickrey auction.

In May 2011, our collaboration with housing corporation Stadgenoot culminated in the first combinatorial auction for housing space in a newly erected multistory building in Amsterdam in the Netherlands. Our primary goal was to allocate space based on the preferences of many potential users. The resulting allocation included space for restaurants, boutiques, a dentist, and residential users. The auction we designed maximized total rent for Stadgenoot while complying with municipal and building regulations. We based our design on laboratory experiments that gave us guidance on choices regarding, for example, pricing, feedback, and activity rules. This paper describes the development and the results of this auction. ispartof: Interfaces vol:44 issue:4 pages:351-363 status: published

In a door-to-door fundraising field experiment, we study the impact of fundraising mechanisms on charitable giving. We approached about 4500 households, each participating in an all-pay auction, a lottery, a non-anonymous voluntary contribution mechanism (VCM), or an anonymous VCM. In contrast to the VCMs, households in the all-pay auction and the lottery competed for a prize. Although the all-pay auction is the superior fundraising mechanism both in theory and in the laboratory, it did not raise the highest revenue per household in the field and even raised significantly less than the anonymous VCM. Our experiment reveals that this can be attributed to substantially lower participation in the all-pay auction than in the other mechanisms while the average donation for those who contribute is only slightly (and statistically insignificantly) higher. We explore various explanations for this lower participation and favor one that argues that competition in the all-pay mechanism crowds out intrinsic motivations to contribute. (C) 2013 Published by Elsevier B.V.

We test the Average Credible Deviation Criterion (ACDC), a stability measure and refinement for cheap talk equilibria introduced in De Groot Ruiz et al. (Equilibrium selection in cheap talk games: ACDC rocks when other criteria remain silent, Working paper, University of Amsterdam 2012a). ACDC has been shown to be predictive under general conditions and to organize data well in previous experiments meant to test other concepts. In a new experimental setting, we provide the first systematic test of whether and to which degree credible deviations matter for the stability of cheap talk equilibria. Our principal experimental result is that in a setting where existing concepts are silent, credible deviations matter and matter gradually, as predicted by ACDC.

The danger of collusion presents a serious challenge for auctioneers. In this paper, we compare the collusive properties of two standard auctions, the English auction and the first-price sealed-bid auction, and a lesser-known format, the Amsterdam (second-price) auction. In the Amsterdam auction, the highest losing bidder earns a premium for stirring up the price. We study two settings: in one, all bidders can collude, and in another, only a subset is eligible. The experiments show that the Amsterdam auction triggers less collusion than the standard auctions. We compare experimental results to theoretical predictions, and provide an explanation where they differ.

We experimentally compare three mechanisms used to raise money for charities: first-price winner-pay auctions, first-price all-pay auctions, and lotteries. We stay close to the characteristics of most charity auctions by using an environment with incomplete information and independent private values. Our results support theoretical predictions by showing that the all-pay format raises substantially higher revenue than the other mechanisms.

This paper applies the theory of mechanism design to welfare-to-work programs. When procuring welfare-to-work projects to employment service providers, governments face the problems of adverse selection (the winning provider is not the most efficient one) and moral hazard (the winning provider shirks in its responsibility to reintegrate unemployed people). We compare the constant-reward second-price auction with the socially optimal mechanism and show that the auction generates social welfare that is close to the optimal mechanism, while requiring less information and weaker commitment.Keywords: Adverse selection; Auctions; Incentive contracts; Moral hazard; Welfare-to-work programsJEL classification codes: D44; D82; J68

We study sealed-bid auctions with financial externalities, i.e., auctions in which losers’ utilities depend on how much the winner pays. In the unique symmetric equilibrium of the first-price sealed-bid auction (FPSB), larger financial externalities result in lower bids and in a lower expected revenue. The unique symmetric equilibrium of the second-price sealed-bid auction (SPSB) reveals ambiguous effects. We further show that a resale market does not have an effect on the equilibrium bids and that FPSB yields a lower expected revenue than SPSB. With a reserve price, we find an equilibrium for FPSB that involves pooling at the reserve price. For SPSB we derive a necessary and sufficient condition for the existence of a weakly separating equilibrium, and give an expression for the equilibrium.

Published in the 'European Economic Review' . We experimentally study the effect of information about competitors’ actions on cartel stability and firms’ incentives to form cartels in Cournot markets. As in previous experiments, markets become very competitive when individualized information is available and participants cannot communicate. In contrast, when communication is possible, results reverse: Markets become less competitive and cartels become more stable when individualized information is available. We also observe that the extra profits that firms obtain thanks to the possibility to communicate are higher when individualized information is present, suggesting that firms have greater incentives to form cartels in that situation.

We analyze a client’s choice of contract in auctions where Dutch law firms compete for cases. The distinguishing feature is that lawyers may submit bids with any fee arrangement they prefer: an hourly rate, a fixed fee or a “mixed fee,” which is a time-capped fixed fee plus an hourly rate for any additional hours should the case take longer than expected. This format of selling legal services is unusual in that it both forces lawyers to compete directly against each other and allows clients to easily compare these different offers. We estimate a choice model for clients and find robust evidence that hourly rate bids are a client’s least-preferred choice. Our findings tentatively contradict lawyers’ often made argument that hourly rates are in a client’s best interest.

In a laboratory experiment, we compare two auction mechanisms that determine the sequence of service to queued customers. In the server-initiated auction, the server, when idle, sells the right to be served next to the highest bidding customer in the queue and distributes the proceeds among the remaining customers. We show that this mechanism has an efficient equilibrium. In the customer-initiated auction, new arrivals can sequentially trade places with queued customers. This mechanism does not have an efficient equilibrium. We use two novel experimental protocols to examine the behavioral properties of both auction mechanisms. We find that, on average, the server-initiated auction and the customer-initiated auction perform equally well in terms of efficiency gain. Moreover, participants indicate that they find the server-initiated auction a fairer mechanism than the customer-initiated auction. When voting between the two auctions, participants tended to favor the server-initiated auction. We also find evidence of endowment and sunk-cost effects, which partially explains deviations from standard theory predictions.

We analyze a client's choice of contract in auctions where Dutch law firms compete for routine cases. The distinguishing feature here is that lawyers may submit bids with any fee arrangement they prefer: an hourly rate, a fixed fee or a mixed fee, which is a time-capped fixed fee plus an hourly rate for any additional hours should the case take longer than expected. Furthermore, this format of selling legal services is unusual in that it both forces lawyers to compete directly against each other and allows clients to easily compare these different offers. We empirically estimate a choice model for clients and find robust evidence that hourly rate bids are a client's least-preferred choice. Our findings tentatively contradict lawyers' often made argument that hourly rates are in a client's best interest.

The provision of non-pecuniary incentives in education is a topic that has received much scholarly attention lately. Our paper contributes to this discussion by investigating the effectiveness of grade incentives in increasing student performance. We perform a direct comparison of the two most commonly used grading practices: the absolute (i.e., criterion-referenced) and the relative (i.e., norm-referenced) grading schemes in a large-scale field experiment at a university. We hypothesize that relative grading, by creating a rank-order tournament in the classroom, provides stronger incentives for male students than absolute grading. In the full sample, we find weak support for our hypothesis. Among the more motivated students we find evidence that men indeed score significantly higher on the test when graded on a curve. Female students, irrespective of their motivation, do not increase their scores under relative grading. Since women slightly outperform men under absolute grading, grading on a curve actually narrows the gender gap in performance.

To read the most recent version of the discussion paper click here . The provision of non-pecuniary incentives in education is a topic that has received much scholarly attention lately. Our paper contributes to this discussion by investigating the effectiveness of grade incentives in increasing student performance. We perform a direct comparison of the two most commonly used grading practices: the absolute (i.e., criterion-referenced) and the relative (i.e., norm-referenced) grading schemes in a large-scale field experiment at a university. We hypothesize that relative grading, by creating a rank-order tournament in the classroom, provides stronger incentives for male students than absolute grading. In the full sample, we find weak support for our hypothesis. Among the more motivated students we find evidence that men indeed score significantly higher on the test when graded on a curve. Female students, irrespective of their motivation, do not increase their scores under relative grading. Since women slightly outperform men under absolute grading, grading on a curve actually narrows the gender gap in performance.

This paper describes a combinatorial auction design for real-estate markets where floor space (in a multi-storeyed building) is to be allocated to various interested parties. Our design is based on lab experiments that provide guidance in choices regarding pricing, feedback, and activity rules. In addition, the allocation needs to satisfy several municipal and building regulations. We show how these regulations can be included in an integer program that is used to solve the winner determination problem, and discuss its computational complexity. Finally, we report on a practical application of this design, where over one hundred bidders took part in the first combinatorial auction for housing space, in a newly erected building in Amsterdam (the Netherlands).

We test the Average Credible Deviation Criterion (ACDC), a stability measure and refinement for cheap talk equilibria introduced in De Groot Ruiz, Offerman & Onderstal (2011b). ACDC has been shown to be predictive under general conditions and to organize data well in previous experiments meant to test other concepts. This experiment provides the first systematic test of whether and to which degree credible deviations matter for the stability of cheap talk equilibria. Furthermore, it tests ACDC in a new setting. We also introduce a neologism dynamic to explain the main dynamic characteristics of our data. Our main result is that credible deviations matter and matter gradually, as predicted by ACDC. In addition, our data support the predictions of ACDC in settings where existing concepts are silent. Finally, we test the prediction derived in De Groot Ruiz, Offerman & Onderstal (2011a) about bargaining power and information transmission. We find that, as predicted, less information is transmitted as the Sender's relative power decreases.

This discussion paper led to an article in Applied Economics (2012). Vol. 44(32), pages 4211-4219. We examine how self-selection of workers into firms depends on the power of the firms' incentive schemes and how it affects the performance of firms that increase the power of the incentive schemes. In a laboratory experiment, we let subjects choose between (low-powered) team incentives and (high-powered) individual incentives. We observe that subjects exhibiting high trust or reciprocity in the trust game are more likely to choose team incentives. When exposed to individual incentives, workers who chose team incentives perform worse if both the unobservable interdependency between workers and their incentive to cooperate under team incentives are high.

This discussion paper resulted in an article in the Journal of Public Economics (2013). Volume 105, pages 72-85. In a door-to-door fundraising field experiment, we study the impact of fundraising mechanisms on charitable giving. We approached about 4500 households, each participating in either an all-pay auction, a lottery, a non-anonymous voluntary contribution mechanism (VCM), or an anonymous VCM. In contrast to the VCMs, households competed for a prize in the all-pay auction and the lottery. Although the all-pay auction is the superior fundraising mechanism both in theory and in the laboratory, it raised the lowest revenue per household in the field. Our experiment reveals two potential explanations for this anomaly. First, participation in the all-pay auction is substantially lower than in the other mechanisms while the average donation for those who contribute is only slightly higher. We explore various explanations for this lower participation and favor one that argues that competition in the all-pay mechanism crowds out intrinsic motivations to contribute. Second, the non-anonymity may have a negative effect: conditional on donating, households contribute less in the non-anonymous VCM than in the anonymous VCM. Among the non-anonymous mechanisms, the lottery raises the largest revenue per household. Notably, the method that scored best, the anonymous VCM, is the one most used by door-to-door fund raisers in the Netherlands.

We provide a game theoretic analysis of how power shapes the clarity of communication. We analyze information transmission in a cheap talk bargaining game between an informed Sender and an uninformed Receiver. Theoretically, we find that the maximum amount of information that can be transmitted in equilibrium is increasing in the bargaining power of the Sender relative to that of the Receiver. Using the ACDC-selection criterion, which selects a unique most-informative equilibrium, we predict that information transmission is increasing in the Sender's relative bargaining power. This prediction is corroborated by an experiment. Finally, we show how partial information transmission can lead to communication failure, and show how and under which conditions a delegation mechanism can solve this problem.

If a government auctions the right to market a good, continuity is likely to be of significant importance. In a laboratory experiment, we compare the effects of bidders' limited liability in the first-price sealed-bid auction and the English auction in a common value setting. Our data strongly reject our theoretical prediction that the English auction leads to less aggressive bids and fewer bankruptcies than the first-price sealed-bid auction. X-cursedness gives a robust explanation of our experimental observations, in contrast to risk aversion and asymmetric equilibria.

This paper studies markets plagued with asymmetric information on the quality of traded goods. In Akerlof's setting, sellers are better informed than buyers. In contrast, we examine cases where buyers are better informed than sellers. This creates an inverse adverse selection problem: The market tends to disappear from the bottom rather than from the top. In contrast to the traditional model, it is the high-value goods (gems) that are traded on the market, rather than the low-value goods (lemons). We investigate the consequences of this inverse adverse selection and its potential solutions. The uninformed buyer in a traditional market for lemons experiences the quality of the good he purchased; instead, the uninformed seller may never know the quality of the good that he sold. This renders the conventional legal and contractual solutions to the lemons problem often ineffective in the gems case. We further explore the theoretical and practical appeal of m arket, contractual, and legal solutions. Our results show that auctions (competition among many informed buyers) provide a solution to the inverse adverse selection problem.

We test the Average Credible Deviation Criterion (ACDC), a stability measure and refinement for cheap talk equilibria introduced in De Groot Ruiz, Offerman & Onderstal (2011b). ACDC has been shown to be predictive under general conditions and to organize data well in previous experiments meant to test other concepts. This experiment provides the first systematic test of whether and to which degree credible deviations matter for the stability of cheap talk equilibria. Furthermore, it tests ACDC in a new setting. We also introduce a neologism dynamic to explain the main dynamic characteristics of our data. Our main result is that credible deviations matter and matter gradually, as predicted by ACDC. In addition, our data support the predictions of ACDC in settings where existing concepts are silent. Finally, we test the prediction derived in De Groot Ruiz, Offerman & Onderstal (2011a) about bargaining power and information transmission. We find that, as predicted, less information is transmitted as the Sender’s relative power decreases.

This discussion paper resulted in a publication in 'Games and Economic Behavior' , 2015, 91, 14-25. Currently no refinement exists that successfully selects equilibria across a wider range of Cheap Talk games. We propose a generalization of refinements based on credible deviations, such as neologism proofness and announcement proofness. According to our Average Credible Deviation Criterion (ACDC), the stability of an equilibrium is determined by the frequency and the size of credible deviations. In our experiment, we find support for the relevance of credible deviations. In addition, we find support for ACDC in settings where other criteria remain silent. ACDC also explains results from previous experiments.

We experimentally examine the collusive properties of two commonly used auctions: the English auction (EN) and the first-price sealed-bid auction (FPSB). In theory, both tacit and overt collusion are always incentive compatible in EN while both can be incentive compatible in FPSB if the auction is repeated and bidders are patient enough. We find that the auctions do not differ in subjects’ propensity to collude overtly and in the likelihood that subjects defect from a collusive agreement. Moreover, the average winning bid does not differ between the auctions unless subjects can collude overtly. Under overt collusion, stable cartels buy at a lower price in EN than in FPSB resulting in a lower average winning bid in EN.

Politicians differ in their ability to implement some policy. In an election, candidates make commitments regarding the plans they will try to implement if elected. These serve as a signal of true ability. In equilibrium, candidates make overambitious promises. The candidate with the highest ability wins. Yet, the electorate may be better off having a random candidate implement her best plan, rather than seeing the winner implementing an overambitious plan. This is more likely if the ability distribution is skewed toward high values, the number of candidates is high, with private benefits from being elected, or if parties select candidates.

The design of tenders and contracts is a crucial factor in the success or failure of the contracting-out of reintegration services. In a laboratory experiment with professionals from private reintegration service providers, we tested two tender designs. In the first design, the government announces a predetermined amount that will be paid for each employment outcome. Participants then bid an amount of money that they are prepared to pay to operate the contract. This auction resembles contracting in the Australian Job Network and the British Employment Zones. The second design is the lowest-reward auction. In this auction, the participants bid a reward. The lowest bid wins the contract, and the reward is then paid for each unit of effort. The lowest-reward auction is similar to the current tendering practice in the Netherlands. We find that an auction with a fixed reward per placement is more efficient, yields more effort from the winner, and results in higher welfare than an auction in which bidders compete on the basis of the reward per placement. We derive this conclusion from both our theoretical analysis and data from our laboratory experiment with professional bidders.

In this paper we analyze bidding behavior of law firms competing for routine cases in a procurement auction. The auction rules allow for several fee arrangements including hourly rates and fixed fees. We observe lawyers bidding several fee arrangements in contrast with both the "usual" hourly rates and our theoretical finding that bidding unravels to an equilibrium in which all bidders submit fixed fees. In particular, "urban" lawyers are most likely to deviate from the standard hourly rates. Finally, clients benefit from the auction compared to the hourly rates offered by lawyers outside the auction.

We examine how self-selection of workers into firms depends on the power of the firms' incentive schemes and how it affects the performance of firms that increase the power of the incentive schemes. In a laboratory experiment, we let subjects choose between (low-powered) team incentives and (high-powered) individual incentives. We observe that subjects exhibiting high trust or reciprocity in the trust game are more likely to choose team incentives. When exposed to individual incentives, workers who chose team incentives perform worse if both the unobservable interdependency between workers and their incentive to cooperate under team incentives are high.

In this note, we experimentally examine the relative performance of price-only auctions and multi-attribute auctions. We do so in procurement settings where the buyer can give the winning bidder incentives to exert effort on non-price dimensions after the auction. Both auctions theoretically implement the surplus maximizing mechanism. Our experiment confirms this result. Moreover, we observe that the "pie" is shared the same in both auctions between buyer and suppliers both in theory and in the lab (after accounting for learning effects). Key words: Procurement; Price-only auctions; Multi-attribute auctions; Incentive Contracts; Laboratory Experiment

We experimentally examine the effectiveness of antitrust policies against bidding rings in theEnglish auction (EN) and the first-price sealed-bid auction (FP). We consider both traditionalantitrust policy (without a leniency program) and modern antitrust policy (with a leniencyprogram). In EN, neither antitrust policy has a significant effect on cartel deterrence, cartelstability, cartel recidivism, and winning bids. In FP, traditional antitrust policy deters cartelformation, destabilizes cartels, reduces the probability that a cartel re-establishes, and reduces theaverage winning bid. In contrast, while a leniency program has no additional effect on cartelformation or cartel recidivism, it makes cartels more stable and reduces the winning cartel bid. Forthcoming in the European Economic Review.

In the past 15 years, governments around the world have often used auctions to sell scarce licenses to operate in markets. In many of these auctions, the number of interested competitors is relatively small compared to the number of available licenses. Auction design is crucial in such uncompetitive circumstances. Details of the design a¤ect participants’ decisions to compete seriously or not. Such decisions are important for the industry structure and the e¢ ciency of the aftermarket as well as for the revenue raised in the auction. This paper provides a survey of emerging experimental work on the question how competition can be stimulated in uncompetitive license auctions. We consider papers that deal with the performance of standard auctions (such as the simultaneous ascending auction and the discriminative auction) in uncompetitive circumstances. We also discuss papers that investigate the performance of some less known auctions (such as the Anglo-Dutch auction, the Amsterdam auction, and Right-To-Choose auctions) that actively seek to foster competition among bidders who would not compete in standard auctions.