Concession Bidding Rules and Investment Time Flexibility
AbstractWe study the competition to operate an infrastructure service by developing a model where firms must report a two-dimensional sealed bid: the price to consumers and the concession fee paid to the government. Two bidding rules are considered in this paper. One rule consists of awarding the concession to the firm that reports the lowest price. The other consists of granting the franchise to the bidder offering the highest fee. We compare the outcome of these rules with reference to two alternative concession arrangements. The former imposes the obligation to immediately undertake the investment required to roll-out the service. The latter allows the concessionaire to optimally decide the investment timing. The focus is on the effect of bidding rules and managerial flexibility on expected social welfare. We find that the two bidding rules provide the same outcome only when the contract does not restrict the autonomy of the franchisee, and we identify the conditions under which time flexibility can provide a higher social value.
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Bibliographic InfoPaper provided by University of Minnesota, Center for International Food and Agricultural Policy in its series Conference Papers with number 6630.
Date of creation: Aug 2006
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More information through EDIRC
Concessions; Auctions; Bidding Rules; Managerial Flexibility; Research Methods/ Statistical Methods; L51; D44; D92;
Other versions of this item:
- Michele Moretto & Cesare Dosi, 2007. "Concession Bidding Rules and Investment Time Flexibility," Working Papers 2007.3, Fondazione Eni Enrico Mattei.
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
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