The CMS Auction: Experimental Studies of a Median-Bid Procurement Auction with Nonbinding Bids

We report on the experimental results of simple auctions with (i) a median-bid pricing rule and (ii) nonbinding bids (winning bids can be withdrawn)--the two central pillars of the competitive bidding program designed by the Centers for Medicare and Medicaid Services (CMS). Comparisons between the performance of the CMS auction and the performance of the excluded-bid auction reveal the problematic nature of the CMS auction. The CMS auction fails to generate competitive prices of goods and fails to satisfy demand. In all proposed efficiency measures, we find the excluded-bid auction significantly outperforms the CMS auction. Copyright 2012, Oxford University Press.

[1]  J. Kagel,et al.  Behavior in Multi-Unit Demand Auctions: Experiments with Uniform Price and Dynamic Vickrey Auctions * , 2001 .

[2]  P. Cramton,et al.  Designed to Fail: The Medicare Auction for Durable Medical Equipment , 2015 .

[3]  Charles R. Plott,et al.  Revenue Generating Properties of Sealed-Bid Auctions: An Experimental Analysis of One-Price and Discriminative Processes , 1985 .

[4]  Robert B. Wilson.  Auctions of Shares , 1979 .

[5]  Claudio Mezzetti,et al.  On the lowest-winning-bid and the highest-losing-bid auctions , 2007 .

[6]  Charles R. Plott,et al.  Market architectures, institutional landscapes and testbed experiments , 1994 .

[7]  P. Cramton,et al.  Reducing Healthcare Costs Requires Good Market Design , 2010 .

[8]  C. Noussair.  Equilibria in a multi-object uniform price sealed bid auction with multi-unit demands , 1995 .

[9]  E. Maasland,et al.  Auction Theory , 2021, Springer Texts in Business and Economics.

[10]  U. Fischbacher.  z-Tree: Zurich toolbox for ready-made economic experiments , 1999 .

[11]  C. Plott,et al.  EPA's New Emissions Trading Mechanism: A Laboratory Evaluation , 1996 .

[12]  Thomas R. Palfrey,et al.  Endogenous entry and self-selection in private value auctions: An experimental study , 2008 .

[13]  Anthony M. Kwasnica,et al.  Multi-Unit Auctions , 2013 .

[14]  Radosveta Ivanova-Stenzel,et al.  The high/low divide: Self-selection by values in auction choice , 2011, Games Econ. Behav..

[15]  Competitive bidding for Medicare Part B clinical laboratory services , 2014, International Journal of Health Care Finance and Economics.

[16]  Properties of Equilibrium Strategies in Multiple-Unit, Uniform-Price Auctions , 2008 .