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Foreign Bidders Going Once, Going Twice... Protection in Government Procurement Auctions

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  • Matthew T Cole

    (Florida International University)

  • Ronald B Davies

    (University College Dublin)

Abstract

Until recently, government procurement bidding processes have generally favored domestic firms by awarding the contract to a domestic firm even if a foreign firm tenders a lower bid, so long as the difference between the two is sufficiently small. This has been replaced by an agreement abolishing this practice. However, the presence of other trade barriers, such as tariffs, can continue to disadvantage foreign firms. We analyze the bidding strategies in such a game and show that when domestic profits are valued, tariffs will be used to discriminate against foreign firms. Furthermore, we find that optimal tariffs can be more protectionist than the optimal price preference, resulting in lower expected domestic welfare and total surplus.

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File URL: http://www.ucd.ie/t4cms/WP14_01.pdf
File Function: First version, 2014
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Bibliographic Info

Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 201401.

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Length: 33 pages
Date of creation: 10 Feb 2014
Date of revision:
Handle: RePEc:ucn:wpaper:201401

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Keywords: Government Procurement; Tariffs; Price Preference;

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  1. Miyagiwa, Kaz, 1991. "Oligopoly and Discriminatory Government Procurement Policy," American Economic Review, American Economic Association, vol. 81(5), pages 1320-28, December.
  2. Todd Kaplan & Shmuel Zamir, 2012. "Asymmetric first-price auctions with uniform distributions: analytic solutions to the general case," Economic Theory, Springer, vol. 50(2), pages 269-302, June.
  3. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
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