Experimental Design Details
The experiment requires three treatments using the low price sealed bid mechanism: one without a dynamic reserve price, one using a dynamic reserve price in a single market, and the third, using a dynamic reserve price with multiple markets. Participants will interact through a computerized system. The winner in these auctions will be determined by the lowest bid submitted. Using a between-subjects design, each participant is exposed to only one of the three conditions and plays multi-round auctions. Each treatment will have 6 sessions. In each session, there are a hypothetical buyer and up to 5 competing sellers. In each session, subjects participate in 10 sequences of up to 3 auction rounds per sequence. In each sequence, each participant will get a fundamental cost to provide the product to the buyer. In each auction round, the actual cost will be equal to this fundamental cost plus a round-specific random draw. The fundamental cost will be redrawn for each sequence from a uniform distribution in the range [100, 200]. Then in each auction round, the second component is redrawn from a uniform distribution on the range [-15, 15]. Participants will only be told their actual cost for the round.
In round 1 of each sequence, everyone is told their realized cost and everyone participates. In each subsequent round, participants are told their realized cost for that round and will be allowed to choose whether or not to participate in the auction for that round. If they choose to participate, they will pay a 2 ECU fee to do so, whether they win or not. If they choose not to participate in a round, they will not be able to participate for the remaining rounds in that sequence, but they will be able to rejoin in the subsequent sequence. After deciding to participate, the participants are informed of the number of competitors who are participating. Each competitor will have received a realized cost using the same method with all draws being independent.
In the first treatment, there is no bid cap imposed between rounds. In the second treatment, inside a sequence, there will be a bid cap on possible bids that can be submitted based on the winning bid in the prior round. There will be no cap placed on bids in round 1 of a sequence, but there will be in rounds 2 and 3. This cap will be reset between sequences, so after one sequence ends and a new one begins, in the first auction round of a new sequence, there will be no bid cap.
For the third treatment, each participant will be randomly assigned to a group. Each group will be randomly matched with another. Inside a sequence, there will be a bid cap on possible bids that can be submitted based on the winning bid in the matched group in the prior round. This means that there will be no cap placed on bids in round 1 of a sequence, but there will be in rounds 2 and 3. This cap will be reset between sequences, so after one sequence ends and a new one begins, in the first auction round of a new sequence, there will be no bid cap.
In addition to a 200 Philippine Peso (PhP) fee for showing up, participants will be paid their earnings for five randomly chosen rounds at the conversion of 1 ECU to 10 PhP. Participants will be recruited through online ads posted in public access student social media groups and invited to sign up for a session. No demographic information will be asked of the participants. The software for the experiment will be programmed using oTree.