Auctions in Defense Acquisition: Theory and Experimental Evidence

When the Federal Acquisition Rules were rewritten in 1997, the Office of Management and Budget eliminated the prohibition on auctions. The enhanced technology currently available makes online auctions more appealing than ever, and the General Services Administration (GSA) has encouraged their use. Now that auctions are possible, even encouraged, for DoD acquisition, the question arises as to how these auctions should be conducted. The purpose of this article is to discuss the different types of auctions DoD may employ and describe the characteristics and qualities associated with each. When buying a single item (or lot of items), like a certain quantity of computers, what are the properties of a sealed-offer auction relative to a reverse auction conducted online? After discussing the theoretical properties of these auctions, the authors will review some of the pertinent experimental literature that may have something to say about each type of auction. Finally, they will conclude with a summary of the significance of these results for DoD auctions. Published in Acquisition Review Quarterly, p212-223, Summer 2002.