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

Peter Cramton, Brian Merlob, Charles R. Plott, and Yuanjun Zhang , Quarterly Journal of Economics 127(2) , 793-827 , May 2012.

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results of simple auctions with (i) a median-bid pricing rule and (ii) nonbinding bids (winning bids can be withdrawn)—the two central pillars of the competitive bidding program designed by the Centers for Medicare and Medicaid Services (CMS).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.

Links to Researchers