INTRODUCTION

In this study, attention focuses on the behavior of a class of auction markets where formal organization requires the individual competing bidders to submit one or more written “sealed bids” specifying the quantity and price at which they are committed to buy (or sell) units of the item being traded.

In many such markets only a single unit, such as a contract for the construction of a bridge or building, is involved. The experimental designs and theory underlying this study assume that many units of the item are to be offered for sale (or are required to be purchased). Perhaps the most important continuing market having this structure is the auction market for new Treasury bills with maturities of 91 and 182 days. Other examples might be the letting of contracts for transportation service, where the service requirements are in excess of the capacity of any single firm, or the letting of material contracts, say for cement, where the requirements exceed the capacity of any one producer.

Our primary purpose is to study individual bidding behavior and price determination under two alternative forms of market organization: (1) price discrimination, under which successful individual bids are filled at their bid prices, and (2) pure competition, under which successful individual bids are filled at the same market-clearing price.