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Preferred Suppliers in Auction Markets

Author

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  • Roberto Burguet
  • Martin K. Perry

Abstract

In a procurement setting, this paper examines agreements between a buyer and one of the suppliers which would increase their joint surplus. The provisions of such agreements depend on the buyer's ability to design the rules of the final procurement auction. When the buyer has no such ability, their joint surplus can be increased by an agreement which grants to the preferred supplier a right-of-first-refusal on the lowest price offer from the other suppliers. When the buyer does have this ability, one agreement which maximizes their joint surplus includes a revelation game for the cost of the preferred supplier and a reserve price in the procurement auction based on that cost.

Suggested Citation

  • Roberto Burguet & Martin K. Perry, 2008. "Preferred Suppliers in Auction Markets," Working Papers 355, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:355
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    References listed on IDEAS

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    1. repec:ebl:ecbull:v:4:y:2006:i:24:p:1-5 is not listed on IDEAS
    2. Burguet, Roberto & Caminal, Ramon & Matutes, Carmen, 2002. "Golden cages for showy birds: Optimal switching costs in labor contracts," European Economic Review, Elsevier, vol. 46(7), pages 1153-1185, July.
    3. Arozamena, Leandro & Weinschelbaum, Federico, 2009. "The effect of corruption on bidding behavior in first-price auctions," European Economic Review, Elsevier, vol. 53(6), pages 645-657, August.
    4. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-194, March.
    5. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    6. Burguet Roberto & Perry Martin K, 2007. "Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-27, June.
    7. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    8. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
    9. Bikhchandani Sushil & Lippman Steven A. & Ryan Reade, 2005. "On the Right-of-First-Refusal," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 5(1), pages 1-44, April.
    10. Leandro Arozamena & Federico Weinschelbaum, 2006. "A note on the suboptimality of right-of-first-refusal clauses," Economics Bulletin, AccessEcon, vol. 4(24), pages 1-5.
    11. Xinyu Hua, 2007. "Strategic ex ante contracts: rent extraction and opportunity costs," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 786-803, September.
    12. Peter Cramton & John McMillan & Paul Milgrom & Bradley Miller & Bridger Mitchell & Daniel Vincent & Robert Wilson, 1998. "Simultaneous Ascending Auctions with Package Bidding," Papers of Peter Cramton 98cra2, University of Maryland, Department of Economics - Peter Cramton.
    13. Cramton, Peter, 1998. "Ascending auctions," European Economic Review, Elsevier, vol. 42(3-5), pages 745-756, May.
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    Citations

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    Cited by:

    1. Klenio Barbosa & Pierre C. Boyer, 2012. "Discrimination in Dynamic Procurement Design with Learning-by-doing," CESifo Working Paper Series 3947, CESifo Group Munich.
    2. Roberto Burguet & Martin K. Perry, 2014. "Preferred Suppliers in Asymmetric Auction Markets," Working Papers 791, Barcelona Graduate School of Economics.
    3. Karine Brisset & François Cochard & François Maréchal, 2015. "Is the newcomer more aggressive when the incumbent is granted a Right-of-First-Refusal in a procurement auction? Experimental Evidence," Theory and Decision, Springer, vol. 78(4), pages 639-665, April.
    4. Mass, Helene & Fugger, Nicolas & Gretschko, Vitali & Wambach, Achim, 2017. "Imitation perfection - a simple rule to prevent discrimination in procurement," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168217, Verein für Socialpolitik / German Economic Association.
    5. Laurent Lamy & Philippe Jehiel, 2016. "On the benefits of set-asides," Post-Print hal-01688237, HAL.
    6. Колесник Г.В. & Швец Н.Н., 2015. "Структурирование Рынков - Инструмент Государственной Промышленной Политики," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 51(4), pages 85-95, октябрь.
    7. Thomas, Charles J., 2011. "Vertical mergers in procurement markets," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 200-209, March.
    8. Daniel Z. Li & Minbo Xu, 2017. "Equilibrium Competition, Social Welfare and Corruption in Procurement Auctions," Working Papers 2017_04, Durham University Business School.
    9. Leandro Arozamena & Nicholas Shunda & Federico Weinschelbaum, 2014. "Optimal nondiscriminatory auctions with favoritism," Economics Bulletin, AccessEcon, vol. 34(1), pages 252-262.
    10. Arozamena, Leandro & Weinschelbaum, Federico, 2011. "On favoritism in auctions with entry," Economics Letters, Elsevier, vol. 110(3), pages 265-267, March.
    11. Coviello, Decio & Gagliarducci, Stefano, 2010. "Building Political Collusion: Evidence from Procurement Auctions," IZA Discussion Papers 4939, Institute for the Study of Labor (IZA).
    12. Constantino Hevia & Martin Gonzalez‐Rozada & Martin Sola & Fabio Spagnolo, 2015. "Estimating and Forecasting the Yield Curve Using A Markov Switching Dynamic Nelson and Siegel Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(6), pages 987-1009, September.
    13. Karl Hackenbrack & Mikhael Shor, 2012. "Auditor Preference," Working papers 2012-20, University of Connecticut, Department of Economics.
    14. Jehiel, Philippe & Lamy, Laurent, 2014. "On discrimination in procurement auctions," CEPR Discussion Papers 9790, C.E.P.R. Discussion Papers.
    15. repec:udt:wpecon:2012-03 is not listed on IDEAS
    16. Huang, He & Li, Zhipeng, 2015. "Procurement auctions with ex-ante endogenous bribery," Economic Modelling, Elsevier, vol. 47(C), pages 111-117.

    More about this item

    Keywords

    procurement auctions; bilateral agreements;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other

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