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Bidding for Complex Projects: Evidence From the Acquisitions of IT Services

Author

Listed:
  • Gian Luigi Albano

    (Italian Public Procurement Agency (Consip S.p.A.))

  • Federico Dini

    (Italian Public Procurement Agency (Consip S.p.A.))

  • Roberto Zampino

    (Italian Public Procurement Agency (Consip S.p.A.))

Abstract

Competitive bidding (as auctions) is commonly used to procure goods and services. Public buyers are often mandated by law to adopt competitive procedures to ensure transparency and promote full competition. Recent theoretical literature, however, suggests that open competition can perform poorly in allocating complex projects. In exploring the determinants of suppliers’ bidding behavior in procurement auctions for complex IT services, we find results that are consistent with theory. We find that price and quality do not exhibit the classical tradeoff one would expect: quite surprisingly, high quality is associated to low prices. Furthermore, while quality is mainly driven by suppliers’ experience, price is affected more by the scoring rule and by the level of expected competition. These results might suggest that (scoring) auctions fail to appropriately incorporate buyers’ complex price/quality preferences in the tender design.

Suggested Citation

  • Gian Luigi Albano & Federico Dini & Roberto Zampino, 2008. "Bidding for Complex Projects: Evidence From the Acquisitions of IT Services," Working Papers 2008.86, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2008.86
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    References listed on IDEAS

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    3. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
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    5. Porter, Robert H & Zona, J Douglas, 1993. "Detection of Bid Rigging in Procurement Auctions," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 518-538, June.
    6. Han Hong, 2000. "Increasing Competition and the Winner's Curse: Evidence from Procurement," Econometric Society World Congress 2000 Contributed Papers 1628, Econometric Society.
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    12. Patrick Bajari & Stephanie Houghton & Steve Tadelis, 2006. "Bidding for Incomplete Contracts: An Empirical Analysis," NBER Working Papers 12051, National Bureau of Economic Research, Inc.
    13. Victor P. Goldberg, 1977. "Competitive Bidding and the Production of Precontract Information," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 250-261, Spring.
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    Cited by:

    1. repec:spr:epolin:v:45:y:2018:i:1:d:10.1007_s40812-017-0088-3 is not listed on IDEAS
    2. Koning, Pierre & van de Meerendonk, Arthur, 2014. "The impact of scoring weights on price and quality outcomes: An application to the procurement of Welfare-to-Work contracts," European Economic Review, Elsevier, vol. 71(C), pages 1-14.

    More about this item

    Keywords

    Procurement Auctions; Scoring Rules; IT Contracts; Price/Quality Ratio;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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