Bid avarage methods in Procurement

Spagnolo, Giancarlo and Albano, Gian Luigi and Bianchi, Milo (2006): Bid avarage methods in Procurement. Published in: Rivista di politica economica No. No. I – II : pp. 41-64.

Abstract

Procurement awarding mechanisms based on average price have been advocated to soften price competition and reduce cost overruns. We show that their theoretical support is shaky. When the bid closest to the average is awarded, firms submit identical bids, making the selection extremely costly and random, without reducing opportunistic behaviors ex-post. When instead the bid closest and below the average is awarded, the equilibrium is very sensitive to firms’ production and participation costs. Either it displays tougher competition than in a first price auction, or it induces firms to randomize their bids.

• Item Type: MPRA Paper
• Language: English
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H76 - State and Local Government: Other Expenditure Categories

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