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Public Procurement vs. Regulated Competition in Selection Markets

Author

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  • José Ignacio Cuesta
  • Pietro Tebaldi

Abstract

A common approach to markets with adverse selection is to regulate competition to minimize inefficiencies, while preserving consumer choice among firms. We study the role of procurement auctions—leading to sole provision by the winning firm—as an alternative market design. Relative to regulated competition, auctions affect product variety, quality, markups, and remove cream-skimming incentives. We develop a framework to study this comparison and apply it to individual health insurance in the US. We find that procurement auctions would increase consumer welfare in most markets, mainly by limiting inefficiencies from adverse selection and market power, and by increasing quality.

Suggested Citation

  • José Ignacio Cuesta & Pietro Tebaldi, 2025. "Public Procurement vs. Regulated Competition in Selection Markets," NBER Working Papers 34141, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34141
    Note: EH IO
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    More about this item

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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