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Competition and Prices in USDA Commodity Procurement

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  • James M. MacDonald
  • Charles R. Handy
  • Gerald E. Plato

Abstract

We evaluate United States Department of Agriculture (USDA) food procurement auctions. The Department spends nearly $1 billion a year for products for domestic feeding programs, such as the National School Lunch Program, and another $2.5 billion for international food programs. USDA's purchasing relics primarily on auction mechanisms designed to induce “hard” manufacturer price competition. We compare private‐sector prices to low bids in 25,000 auctions, and find that typical private‐sector prices substantially exceed USDA low bids for comparable products. We also assess the effects of competition on low bids. Low bids fall as the number of bidders increases, and the effects are nonlinear. Additional bidders have a very small effect on prices when there are already five or six bidders, but a stronger effect in markets with only one or two bidders. Even in this highly transparent bidding environment, competition matters.

Suggested Citation

  • James M. MacDonald & Charles R. Handy & Gerald E. Plato, 2002. "Competition and Prices in USDA Commodity Procurement," Southern Economic Journal, John Wiley & Sons, vol. 69(1), pages 128-143, July.
    • Handle: RePEc:wly:soecon:v:69:y:2002:i:1:p:128-143
    DOI: 10.1002/j.2325-8012.2002.tb00481.x
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    References listed on IDEAS

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    Cited by:

    1. Fernandez-Perez, Adrian & Miffre, Joëlle & Schoen, Tilman & Scott, Ayesha, 2023. "Do spot market auction data help price discovery?," Journal of Commodity Markets, Elsevier, vol. 31(C).
    2. Key, Nigel D. & MacDonald, James M., 2008. "Local Monopsony Power in the Market for Broilers - Evidence from a Farm Survey," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6073, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Martin Schmidt, 2015. "Price Determination in Public Procurement: A Game Theory Approach," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2015(1), pages 49-62.
    4. Ni Yan & WenTing Tao, 2023. "Set-Asides in USDA Food Procurement Auctions," Papers 2302.05772, arXiv.org.

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