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Auctions vs. Bargaining: An Empirical Analysis of Medical Device Procurement

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  • Andrea Bonaccorsi
  • Thomas Lyon
  • Fabio Pammolli
  • Giuseppe Turchetti

Abstract

We test recent theory on the benefits of auctions and bargaining as alternative procurement mechanisms using data on the procurement of medical devices by Italian hospitals. Theory suggests that auctions perform well when cost control is the key concern, but are less effective at producing the optimal mix of quality and price for complex products where quality is difficult to verify. Consistent with the theory, we find that auctions are used more often when the influence of financial staff relative to medical staff is high, when the marginal cost of increasing product quality is high, and when the marginal value of increasing quality is low.

Suggested Citation

  • Andrea Bonaccorsi & Thomas Lyon & Fabio Pammolli & Giuseppe Turchetti, 1999. "Auctions vs. Bargaining: An Empirical Analysis of Medical Device Procurement," LEM Papers Series 1999/20, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  • Handle: RePEc:ssa:lemwps:1999/20
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    Cited by:

    1. G. Crea & A. Cavaliere & A. Cozzi, 2019. "Price discrimination in the Italian medical device industry: an empirical analysis," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(2), pages 571-608, July.
    2. Mahesh Nagarajan & Yehuda Bassok, 2008. "A Bargaining Framework in Supply Chains: The Assembly Problem," Management Science, INFORMS, vol. 54(8), pages 1482-1496, August.
    3. Radkevitch, U.L. & van Heck, H.W.G.M. & Koppius, O.R., 2008. "Choosing between Auctions and Negotiations in Online B2B Markets for IT Services: The Effect of Prior Relationships and Performance," ERIM Report Series Research in Management ERS-2008-004-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    4. Smith, Howard & Thanassoulis, John, 2012. "Upstream uncertainty and countervailing power," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 483-495.
    5. Nicola Doni, 2007. "A Comparison of Alternative Procedures for the Selection of the Private Partner in PPP Projects," Working Papers - Economics wp2007_10, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    6. Nagarajan, Mahesh & Sosic, Greys, 2008. "Game-theoretic analysis of cooperation among supply chain agents: Review and extensions," European Journal of Operational Research, Elsevier, vol. 187(3), pages 719-745, June.
    7. Krisztina Antal-Pomázi, 2012. "Public Procurement as Auction. Theoretical Models and Practical Problems," Public Finance Quarterly, State Audit Office of Hungary, vol. 57(4), pages 381-393.
    8. Maria Ostrovnaya & Elena Podkolzina, 2013. "What impact does antitrust intervention have on competition? The case of public drug procurement in Russia," HSE Working papers WP BRP 32/EC/2013, National Research University Higher School of Economics.

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