Asymmetric Cost Pass‐Through in Multi‐Unit Procurement Auctions: An Experimental Approach*

Abstract

We explore input cost pass‐through in multi‐unit procurement auctions. Whether cost shocks are private versus common across firms has important implications for discriminatory, but not uniform price auctions. We provide evidence of asymmetric pass‐through of private cost shocks in discriminatory auctions. Unlike uniform price auctions, revenue‐maximizing bidders in discriminatory auctions ‘pad’ bids close to the expected clearing price for units with costs below that price, but they do not bid below cost on higher cost units. Therefore, if costs are higher than expected, the clearing price rises and if costs are lower than expected, the clearing price remains high.