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Foreign Bidders Going Once, Going Twice… Protection in Government Procurement Auctions

Author

Listed:
  • Matthew T. Cole

    (Florida International University)

  • Ronald B. Davies

    (University College Dublin; Institute for International Integration Studies, Trinity College Dublin; CES-Ifo)

Abstract

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 This has been replaced by an agreement abolishing this practice.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.

Suggested Citation

  • Matthew T. Cole & Ronald B. Davies, 2014. "Foreign Bidders Going Once, Going Twice… Protection in Government Procurement Auctions," The Institute for International Integration Studies Discussion Paper Series iiisdp441, IIIS.
  • Handle: RePEc:iis:dispap:iiisdp441
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    References listed on IDEAS

    as
    1. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
    2. Miyagiwa, Kaz, 1991. "Oligopoly and Discriminatory Government Procurement Policy," American Economic Review, American Economic Association, vol. 81(5), pages 1320-1328, December.
    3. 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.
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    Citations

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    Cited by:

    1. Cole, Matthew T. & Davies, Ronald B. & Kaplan, Todd, 2017. "Protection in government procurement auctions," Journal of International Economics, Elsevier, vol. 106(C), pages 134-142.
    2. Bernard Hoekman, 2015. "International Cooperation on Public Procurement Regulation," RSCAS Working Papers 2015/88, European University Institute.

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    More about this item

    Keywords

    Government Procurement; Tariffs; Price Preference;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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