Favoritism in Asymmetric Procurement Auctions
نویسنده
چکیده
I examine the economic costs and benefits of granting a right of first refusal to one of two bidders in a procurement auction. This right permits the favored bidder to win a contract by matching the bid of the competing bidder. Such a right, is often observed in business interactions, especially procurement. It is commonly thought that the right of first refusal lowers the payoff to the auctioneer; however, I show conditions under which the auctioneer benefits. I also explore the effect of allowing the auctioneer to set a reserve price and find that the benefits of a right of first refusal still hold. An endogenous reserve price diminishes the cost-reducing effect of a right of first refusal. Both the reserve price and the right of first refusal serve to elicit more aggressive bids and hence, to a certain degree, are substitute tools. Generally, a reserve price will exacerbate asymmetry, while a right of first refusal will reduce asymmetry.
منابع مشابه
Auction Design and Favoritism
The theory of auctions has ignored the fact that often auction designers, not the principal, design auctions In a multi attribute auction, the auction designer may bias his subjective evaluation of quality or distort the relative weights of the various attributes to favor a specific bidder, an ancient concern in the procurement of weapons, in the auctioning of government contracts and in the pu...
متن کاملOn the analysis of asymmetric first price auctions
We provide new tools for studying asymmetric first price auctions, connecting their equilibria to the ρ-concavity of the underlying type distributions, and showing how one can use surplus expressions for symmetric auctions to bound equilibrium behavior in asymmetric auctions. We apply these tools to studying procurement auctions in which, as is common in practice, one seller is given an advanta...
متن کاملBribery and Favoritism by Auctioneers in Sealed-Bid Auctions∗
We consider a model of bribery in an asymmetric procurement auction. In return for a bribe from the dishonest supplier, the auctioneer has the discretion to allow this supplier to revise his bid downward to match the low bid of the honest supplier. The dishonest supplier can also win the contract outright without paying a bribe by bidding below the honest supplier. We investigate the effect of ...
متن کاملAccountability in Complex Procurement Tenders
This paper addresses the issue of favoritism at the design stage of complex procurement auctions. A local community of citizens wants to procure a complex good or project and lacks the ability to translate its preferences into operational technical specifications. This task is delegated to a public officer who may collude with one of the firms at the design stage of the procurement auction in e...
متن کاملRUHR ECONOMIC PAPERS Communication and Reputation in Procurement Auctions
This paper studies the role of communication and reputation in market interactions using data from online procurement auctions. Not only positive reputation ratings but also engaging in communication increases a bidder’s probability of winning the auction. Messages are primarily used to reduce the asymmetric information associated with transactions. JEL Classifi cation: D44, D83, L14
متن کامل