Does Sealed Bidding Promote Competition in the Auctioning of Public Timber?

The USDA Forest Service increasingly relies upon sealed bidding in lieu of oral auctions because of a perception that sealed bidding increases timber sale competition. This paper introduces a comprehensive approach for expressing and estimating the extent that a change from oral to sealed-bid auctions will increase competition through 1) a participation effect of attracting more bidders to a given auction, and 2) a substitution effect of soliciting higher overbids from a given pool of bidders. We develop a framework that expresses these two effects in a single Slutsky-like function. Using the Forest Service’s Rocky Mountain Region as a study site, we apply the Slutsky framework using regression techniques. For the substitution effect, we found that bidders changing from oral to sealed auction bid more aggressively as they increased the overbid by an average of $1.77/CCF. For the participation effect, we found that sealed-bid actions attracted an average 0.28 more bidders, increasing the overbid by an additional $1.68/CCF. These results show unambiguously that sealed bidding promoted Rocky Mountain Region sale competition by an average $3.45/CCF per sale.