Foreign Bidders Going Once, Going Twice... Protection in Government Procurement Auctions
Until recently, government procurement bidding processes have generally favored domestic ﬁrms by awarding the contract to a domestic ﬁrm even if a foreign ﬁrm tenders a lower bid, so long as the difference between the two is sufficiently small. This has been replaced by an agreement abolishing this practice. However, the presence of other trade barriers, such as tariffs, can continue to disadvantage foreign ﬁrms. We analyze the bidding strategies in such a game and show that when domestic proﬁts are valued,tariffs will be used to discriminate against foreign ﬁrms. Furthermore, we ﬁnd that optimal tariffs can be more protectionist than the optimal price preference, resulting in lower expected domestic welfare and total surplus.
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- McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
- Miyagiwa, Kaz, 1991. "Oligopoly and Discriminatory Government Procurement Policy," American Economic Review, American Economic Association, vol. 81(5), pages 1320-1328, December.
- Todd Kaplan & Shmuel Zamir, 2012. "Asymmetric first-price auctions with uniform distributions: analytic solutions to the general case," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(2), pages 269-302, June.