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An Analysis of Protectionist First-Price Auctions

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  • Winston T. H. Koh

Abstract

The paper considers the following problem: One local firm and one foreign firm, each risk-neutral, bid to supply a government project, each knowing its cost, and knowing that the rival's cost is independently uniform on [0,1]. The government wishes to maximise the local surplus, defined as the sum of consumer surplus and the local firm's profit. The paper analyses the equilibrium bid strategies for the protectionist first-price auction, and shows that the protectionist first-price auction generates a larger local surplus compared with the protectionist second-price auction when rule-of-thumb discrimination is practised. The result provides another reason for the prevalence of sealed-bid auctions in government procurement.

Suggested Citation

  • Winston T. H. Koh, 1993. "An Analysis of Protectionist First-Price Auctions," The American Economist, Sage Publications, vol. 37(1), pages 21-30, March.
    • Handle: RePEc:sae:amerec:v:37:y:1993:i:1:p:21-30
    DOI: 10.1177/056943459303700103
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    References listed on IDEAS

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    1. Riley, John G, 1989. "Expected Revenue from Open and Sealed Bid Auctions," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 41-50, Summer.
    2. 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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