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Welfare Loss In Linear Price-Preference Procurement Auctions


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    (School of Economics and Social Sciences, Singapore Management University, 90 Stamford Road, Singapore 178903, Singapore)


In government procurement auctions, discrimination in favor of one group of participants (e.g. domestic firms, minority bidders) over another group is a common practice. The optimal discriminatory rules for these auctions are typically non-linear and could be administratively complex and costly to implement. In practice, procurement auctions are usually organized as sealed-bid first-price auction with a simple percentage price-preference policy. In this paper, we analyze a model with two bidders that draw their costs from a common uniform distribution, and derive an upper bound to the welfare loss resulting from the use of linear-price preference auctions.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.

Volume (Year): 09 (2007)
Issue (Month): 04 ()
Pages: 719-730

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Handle: RePEc:wsi:igtrxx:v:09:y:2007:i:04:p:719-730

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Keywords: Discriminatory auction; price-preference; public procurement; government tender; JEL Classification Numbers: D44; JEL Classification Numbers: H57;

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