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Welfare Loss In Linear Price-Preference Procurement Auctions

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Author Info
WINSTON T. H. KOH () (School of Economics and Social Sciences, Singapore Management University, 90 Stamford Road, Singapore 178903, Singapore)

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Abstract

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

Find related papers by JEL classification:
B4 - Schools of Economic Thought and Methodology - - Economic Methodology
C0 - Mathematical and Quantitative Methods - - General
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
D5 - Microeconomics - - General Equilibrium and Disequilibrium
D7 - Microeconomics - - Analysis of Collective Decision-Making
M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics

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