Auctions Versus Negotiations in Procurement: An Empirical Analysis
AbstractShould the buyer of a customized good use competitive bidding or negotiation to select a contractor? To shed light on this question, we offer a framework that compares auctions with negotiations. We then examine a comprehensive data set of private sector building contracts awarded in Northern California during the years 1995-2000. The analysis suggests a number of potential limitations to the use of auctions. Auctions perform poorly when projects are complex, contractual design is incomplete and there are few available bidders. Furthermore, auctions stifle communication between buyers and the sellers, preventing the buyer from utilizing the contractor's expertise when designing the project. Some implications of these results for procurement in the public sector are discussed.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9757.
Date of creation: Jun 2003
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Other versions of this item:
- Steven Tadelis, 2009. "Auctions Versus Negotiations in Procurement: An Empirical Analysis," Journal of Law, Economics and Organization, Oxford University Press, vol. 25(2), pages 372-399, October.
- Patrick Bajari & Robert McMillan & Steven Tadelis, . "Auctions versus Negotiations in Procurement: An Empirical Analysis," Working Papers 02007, Stanford University, Department of Economics.
- L0 - Industrial Organization - - General
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-31 (All new papers)
- NEP-COM-2004-08-31 (Industrial Competition)
- NEP-IND-2003-06-16 (Industrial Organization)
- NEP-MIC-2004-08-31 (Microeconomics)
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