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Auctions vs negotiations: a study of price differentials

  • Egil Kjerstad

    (Institute for Research in Economics, Bergen, Norway)

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    Recent contributions in auction and bargaining theory suggest that a procurer should place more faith in the power of competition among alternative suppliers than in his or her own negotiating skill. Based on data from 216 contracts between procurers and suppliers of medical and surgical articles, we test whether auctions and bargaining result in significantly different prices. The main results are that auctions give 'thicker' markets compared with negotiations, as expected, but that auctions do not result in significantly lower prices compared with negotiations. Copyright © 2005 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/hec.1004
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    Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

    Volume (Year): 14 (2005)
    Issue (Month): 12 ()
    Pages: 1239-1251

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    Handle: RePEc:wly:hlthec:v:14:y:2005:i:12:p:1239-1251
    Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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    1. Laffont, Jean-Jacques & Tirole, Jean, 1987. "Auctioning Incentive Contracts," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 921-37, October.
    2. Milgrom, Paul, 1989. "Auctions and Bidding: A Primer," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 3-22, Summer.
    3. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
    4. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
    5. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
    6. Kennan, J. & Wilson, R., 1991. "Bargaining with Private Information," Working Papers 90-01rev, University of Iowa, Department of Economics.
    7. Kjerstad, Egil & Vagstad, Steinar, 2000. "Procurement auctions with entry of bidders," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1243-1257, December.
    8. Bester, Helmut, 1993. "Bargaining versus Price Competition in Markets with Quality Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 278-88, March.
    9. Arnold, Michael A & Lippman, Steven A, 1998. "Posted Prices versus Bargaining in Markets with Asymmetric Information," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 450-57, July.
    10. Engelbrecht-Wiggans Richard, 1993. "Optimal Auctions Revisited," Games and Economic Behavior, Elsevier, vol. 5(2), pages 227-239, April.
    11. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
    12. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
    13. Riordan, Michael H & Sappington, David E M, 1987. "Awarding Monopoly Franchises," American Economic Review, American Economic Association, vol. 77(3), pages 375-87, June.
    14. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
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