Concession Bidding Rules and Investment Time Flexibility
We study the competition to operate an infrastructure service by developing a model where firms must report a two-dimensional sealed bid: the price to consumers and the concession fee paid to the government. Two bidding rules are considered in this paper. One rule consists of awarding the concession to the firm that reports the lowest price. The other consists of granting the franchise to the bidder offering the highest fee. We compare the outcome of these rules with reference to two alternative concession arrangements. The former imposes the obligation to immediately undertake the investment required to roll-out the service. The latter allows the concessionaire to optimally decide the investment timing. The focus is on the effect of bidding rules and managerial flexibility on expected social welfare. We find that the two bidding rules provide the same outcome only when the contract does not restrict the autonomy of the franchisee, and we identify the conditions under which time flexibility can provide a higher social value.
|Date of creation:||Aug 2006|
|Date of revision:|
|Contact details of provider:|| Postal: 332 Classroom Office Bldg, 1994 Buford Avenue, St. Paul, MN 55108-6040|
Phone: (612) 625-8713
Fax: (612) 625-6245
Web page: http://www.cifap.umn.edu/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eduardo M.R.A. Engel & Ronald D. Fischer & Alexander Galetovic, 1998.
"Least-Present-Value-of-Revenue Auctions and Highway Franchising,"
NBER Working Papers
6689, National Bureau of Economic Research, Inc.
- Eduardo M. R. A. Engel & Ronald D. Fischer & Alexander Galetovic, 2001. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 993-1020, October.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 1998. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Documentos de Trabajo 37, Centro de Economía Aplicada, Universidad de Chile.
- Jackson, Matthew O. & Jeroen Swinkels, 2004.
"Existence of Equilibrium in Single and Double Private Value Auctions,"
1192, California Institute of Technology, Division of the Humanities and Social Sciences.
- Matthew O. Jackson & Jeroen M. Swinkels, 2005. "Existence of Equilibrium in Single and Double Private Value Auctions," Econometrica, Econometric Society, vol. 73(1), pages 93-139, 01.
- Che, Y.K., 1991.
"Design Competition through Multidimensional Auctions,"
9123, Wisconsin Madison - Social Systems.
- Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
- Klein, Michael, 1996. "Competition in network industries," Policy Research Working Paper Series 1591, The World Bank.
- Leo K. Simon and William R. Zame., 1987.
"Discontinuous Games and Endogenous Sharing Rules,"
Economics Working Papers
8756, University of California at Berkeley.
- Chiara D'Alpaos & Cesare Dosi & Michele Moretto, 2005.
"Concession lenght and investment timing flexibility,"
ubs0502, University of Brescia, Department of Economics.
- Michele Moretto & Chiara D.Alpaos & Cesare Dosi, 2005. "Concession Length and Investment Timing Flexibility," Working Papers 2005.32, Fondazione Eni Enrico Mattei.
- Jean-Jaques Laffont & Jean Tirole, 1985.
"Auctioning Incentive Contracts,"
403, Massachusetts Institute of Technology (MIT), Department of Economics.
- Paul Milgrom & Robert Weber, 1981. "Distributional Strategies for Games with Incomplete Information," Discussion Papers 428R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Spulber, Daniel F, 1995. "Bertrand Competition When Rivals' Costs Are Unknown," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 1-11, March.
When requesting a correction, please mention this item's handle: RePEc:ags:umcicp:6630. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.