Gian Luigi Albano () (Consip S.p.A., Rome) Milo Bianchi () (Stockholm School of Economics) Giancarlo Spagnolo () (Consip S.p.A., Rome and Stockholm School of Economics)
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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.
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Volume (Year): 96 (2006) Issue (Month): 1 (January-February) Pages: 41-62 Download reference. The following formats are available: HTML
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Handle: RePEc:rpo:ripoec:v:96:y:2006:i:1:p:41-62
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Find related papers by JEL classification: D44 - Microeconomics - - Market Structure and Pricing - - - Auctions H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
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