Dynamic Entry, Reverse Auctions, and the Purchase of Environmental Services

Jacob R. Fooks, Kent D. Messer and Joshua M. Duke


This research uses economic experiments to examine the effectiveness of reverse auction institutions in an endogenous dynamic entry setting. Induced values are used to compare behavior in dynamic and static auction structures. Past research on this topic has understudied dynamic elements such as strategic entry and endogenous bidder selection that arise in a dynamic environment. The results suggest complex behavioral patterns in which some sellers overenter early and others strategically wait. This affects the owners’ abilities to extract rents in a dynamic setting. This result impacts policy effectiveness because previous work overlooking these dynamic elements likely understates auction cost-effectiveness. (JEL Q24, Q57)

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