Information And Gift-exchange Behavior In Procurement Auction

Procurement is a fairly common seen activity in the economy. This thesis aims to learn about whether buyers and sellers trust and reciprocate in procurement using buyer-determined auction and incomplete contract, and how’s the effect of revealing bids in the same group on sellers’ choice of quality level using experimental way.In the experiment, sellers are given the same cost schedule and capable of producing goods at different quality levels. At the beginning of the auction, each seller offers a price to the buyer in their group. After observing bids in the group, the buyer chooses one seller to trade with. Then the chosen seller chooses one of the quality levels and provides good to the buyer at this level. The difference between two treatments is the information the chosen seller gets when choosing quality. The chosen seller knows only his/her own bid when choosing quality in concealed bid treatment and in revealed bid treatment he/she will know about both bids in the group.The result shows the existence of gift-exchange between buyers and sellers, as the quality increases with price and buyers are willing to choose the higher bid in their group. Also, the sellers react to the different information given to them. Knowing that he/she is chosen with the bid being highest in the group, the seller will offer higher quality at the certain price, and the increase in the quality is proportional to the difference between bids in the group. While, the seller will not offer lower quality than he/she does without getting the information of he/she is chosen with the bid being lowest in the group.The conclusion reached is in a procurement using buyer-determined auction and incomplete contract, the reveal of bids in the group is recommended, considering profits for buyers and sellers, and the quality level in the market.