Bid avarage methods in Procurement
AbstractProcurement awarding mechanisms based on average price have been advocated to soften price competition and reduce cost overruns. We show that their theoretical support is shaky. When the bid closest to the average is awarded, firms submit identical bids, making the selection extremely costly and random, without reducing opportunistic behaviors ex-post. When instead the bid closest and below the average is awarded, the equilibrium is very sensitive to firms’ production and participation costs. Either it displays tougher competition than in a first price auction, or it induces firms to randomize their bids.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 8997.
Date of creation: 2006
Date of revision:
Other versions of this item:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
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