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Preferred Suppliers in Auction Markets

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Abstract

In a procurement setting, this paper examines agreements between a buyer and one of the suppliers which would increase their joint surplus. The provisions of such agreements depend on the buyer's ability to design the rules of the final procurement auction. When the buyer has no such ability, their joint surplus can be increased by an agreement which grants to the preferred supplier a right-of-first-refusal on the lowest price offer from the other suppliers. When the buyer does have this ability, one agreement which maximizes their joint surplus includes a revelation game for the cost of the preferred supplier and a reserve price in the procurement auction based on that cost.

Suggested Citation

  • Roberto Burguet & Martin K. Perry, 2008. "Preferred Suppliers in Auction Markets," UFAE and IAE Working Papers 752.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    • Handle: RePEc:aub:autbar:752.08
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    Cited by:

    1. Huang, Yangguang, 2019. "An empirical study of scoring auctions and quality manipulation corruption," European Economic Review, Elsevier, vol. 120(C).
    2. Yeon-Koo Che & Elisabetta Iossa & Patrick Rey, 2021. "Prizes versus Contracts as Incentives for Innovation [Subgame Perfect Implementation Under Information Perturbations]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(5), pages 2149-2178.
    3. Arozamena, Leandro & Weinschelbaum, Federico, 2011. "On favoritism in auctions with entry," Economics Letters, Elsevier, vol. 110(3), pages 265-267, March.
    4. Philippe Jehiel & Laurent Lamy, 2020. "On the Benefits of Set-Asides," Journal of the European Economic Association, European Economic Association, vol. 18(4), pages 1655-1696.
    5. Helene Mass & Nicolas Fugger & Vitali Gretschko & Achim Wambach, 2020. "Imitation Perfection—A Simple Rule to Prevent Discrimination in Procurement," American Economic Journal: Microeconomics, American Economic Association, vol. 12(3), pages 189-245, August.
    6. Barbosa, Klenio & Boyer, Pierre C., 2021. "Discrimination in Dynamic Procurement Design with Learning-by-doing," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    7. Колесник Г.В. & Швец Н.Н., 2015. "Структурирование Рынков - Инструмент Государственной Промышленной Политики," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 51(4), pages 85-95, октябрь.
    8. Leandro Arozamena & Nicholas Shunda & Federico Weinschelbaum, 2014. "Optimal nondiscriminatory auctions with favoritism," Economics Bulletin, AccessEcon, vol. 34(1), pages 252-262.
    9. Constantino Hevia & Martin Gonzalez‐Rozada & Martin Sola & Fabio Spagnolo, 2015. "Estimating and Forecasting the Yield Curve Using A Markov Switching Dynamic Nelson and Siegel Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(6), pages 987-1009, September.
    10. Thomas, Charles J., 2011. "Vertical mergers in procurement markets," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 200-209, March.
    11. Minbo Xu & Daniel Z. Li, 2019. "Equilibrium competition, social welfare and corruption in procurement auctions," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 53(3), pages 443-465, October.
    12. Huang, Yangguang & Xia, Jijun, 2019. "Procurement auctions under quality manipulation corruption," European Economic Review, Elsevier, vol. 111(C), pages 380-399.
    13. Karl Hackenbrack & Mikhael Shor, 2012. "Auditor Preference," Working papers 2012-20, University of Connecticut, Department of Economics.
    14. Coviello, Decio & Gagliarducci, Stefano, 2010. "Building Political Collusion: Evidence from Procurement Auctions," IZA Discussion Papers 4939, Institute of Labor Economics (IZA).
    15. Jehiel, Philippe & Lamy, Laurent, 2014. "On discrimination in procurement auctions," CEPR Discussion Papers 9790, C.E.P.R. Discussion Papers.
    16. Huang, He & Li, Zhipeng, 2015. "Procurement auctions with ex-ante endogenous bribery," Economic Modelling, Elsevier, vol. 47(C), pages 111-117.
    17. Roberto Burguet & Martin K. Perry, 2014. "Preferred Suppliers in Asymmetric Auction Markets," Working Papers 791, Barcelona School of Economics.
    18. Karine Brisset & François Cochard & François Maréchal, 2015. "Is the newcomer more aggressive when the incumbent is granted a Right-of-First-Refusal in a procurement auction? Experimental Evidence," Theory and Decision, Springer, vol. 78(4), pages 639-665, April.

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    More about this item

    Keywords

    procurement auctions; bilateral agreements;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other

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