Auctions that are too good to be true
AbstractAuctions are supposed to procure the best deal money can buy. Yet, practitioners who procure complex contracts by auction are well aware of some basic pitfalls. One concern is that winning bids may not reflect the quality of the bidder but strategic behavior like low-balling bids or underestimating costs. Such behavior may then lead to demands for contract renegotiation by the winning bidder that are hard to resist. The problem plagues complex contracts for civil works or equipment as well as contracts for various types of public-private partnerships. In 1993 two engineering professors proposed a bidding scheme that aims at preventing excessively low bids. Effectively they developed a way to disqualify bids that are “too good to be true”. Several countries, including Colombia, Italy, China, Chile, Japan, Peru and Taiwan have adopted such auction schemes. However, it turns out that the new auctions give rise to new forms of strategic bidding behavior, which create even bigger problems2. Altogether, the new auctions seem to be “too good to be true”. Using standard procedures like first price sealed bid auctions remains best practice as long as well-established disciplines for pre-qualification and control of post-bid behavior are maintained. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Frankfurt School of Finance and Management in its series Frankfurt School - Working Paper Series with number 186.
Date of creation: 2012
Date of revision:
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-05 (All new papers)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Boeing, Philipp & Mueller, Elisabeth & Sandner, Philipp, 2012. "What makes Chinese firms productive? Learning from indigenous and foreign sources of knowledge," Frankfurt School - Working Paper Series 196, Frankfurt School of Finance and Management.
- Alexander Libman & Vladimir Kozlov & André Schultz, 2012.
"Roving Bandits in Action: Outside Option and Governmental Predation in Autocracies,"
Wiley Blackwell, vol. 65(4), pages 526-562, November.
- Libman, Alexander & Kozlov, Vladimir & Schultz, André, 2012. "Roving bandits in action: Outside option and governmental predation in autocracies," Frankfurt School - Working Paper Series 190, Frankfurt School of Finance and Management.
- Dietmar Harhoff & Elisabeth Mueller & John Van Reenen, 2013.
"What are the Channels for Technology Sourcing? Panel Data Evidence from German Companies,"
CEP Discussion Papers
dp1193, Centre for Economic Performance, LSE.
- Dietmar Harhoff & Elisabeth Mueller & John Van Reenen, 2013. "What are the channels for technology sourcing? Panel data evidence from German companies," LSE Research Online Documents on Economics 51524, London School of Economics and Political Science, LSE Library.
- Harhoff, Dietmar, 2012. "What are the Channels for Technology Sourcing? Panel Data Evidence from German Companies," Discussion Papers in Business Administration 14327, University of Munich, Munich School of Management.
- Harhoff, Dietmar & Mueller, Elisabeth & Van Reenen, John, 2012. "What are the channels for technology sourcing? Panel data evidence from German companies," Frankfurt School - Working Paper Series 187, Frankfurt School of Finance and Management.
- Böing, Philipp & Müller, Elisabeth, 2012. "Technological Capabilities of Chinese Enterprises: Who is Going to Compete Abroad?," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62081, Verein für Socialpolitik / German Economic Association.
- Inklaar, Robert & Koetter, Michael & Noth, Felix, 2012. "Who's afraid of big bad banks? Bank competition, SME, and industry growth," Frankfurt School - Working Paper Series 197, Frankfurt School of Finance and Management.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.