IDEAS home Printed from https://ideas.repec.org/p/udt/wpecon/2012-03.html
   My bibliography  Save this paper

Optimal nondiscriminatory auctions with favoritism

Author

Listed:
  • Leandro Arozamena
  • Nicholas Shunda
  • Federico Weinschelbaum

Abstract

In many auction settings, there is favoritism: the seller's welfare depends positively on the utility of a subset of potential bidders. However, laws or regulations may not allow the seller to discriminate among bidders. We find the optimal nondiscriminatory auction in a private value, single-unit model under favoritism. At the optimal auction there is a reserve price, or an entry fee, which is decreasing in the proportion of preferred bidders and in the intensity of the preference. Otherwise, the highest-valuation bidder wins. We show that, at least under some conditions, imposing a no-discrimination constraint raises expected seller revenue.

Suggested Citation

  • Leandro Arozamena & Nicholas Shunda & Federico Weinschelbaum, 2012. "Optimal nondiscriminatory auctions with favoritism," Department of Economics Working Papers 2012-03, Universidad Torcuato Di Tella.
    • Handle: RePEc:udt:wpecon:2012-03
    as

    Download full text from publisher

    File URL: https://www.utdt.edu/download.php?fname=_133614455513936800.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Roberto Burguet & Martin K. Perry, 2009. "Preferred suppliers in auction markets," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 283-295, June.
    2. Leandro Arozamena & Federico Weinschelbaum, 2006. "A note on the suboptimality of right-of-first-refusal clauses," Economics Bulletin, AccessEcon, vol. 4(24), pages 1-5.
    3. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-392, June.
    4. Naegelen, Florence & Mougeot, Michel, 1998. "Discriminatory public procurement policy and cost reduction incentives," Journal of Public Economics, Elsevier, vol. 67(3), pages 349-367, March.
    5. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    6. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
    7. Leandro Arozamena & Nicholas Shunda & Federico Weinschelbaum, 2014. "Optimal nondiscriminatory auctions with favoritism," Economics Bulletin, AccessEcon, vol. 34(1), pages 252-262.
    8. Lee, Joon-Suk, 2008. "Favoritism in asymmetric procurement auctions," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1407-1424, November.
    9. Arozamena, Leandro & Weinschelbaum, Federico, 2011. "On favoritism in auctions with entry," Economics Letters, Elsevier, vol. 110(3), pages 265-267, March.
    10. Branco, Fernando, 1994. "Favoring domestic firms in procurement contracts," Journal of International Economics, Elsevier, vol. 37(1-2), pages 65-80, August.
    11. Bikhchandani Sushil & Lippman Steven A. & Ryan Reade, 2005. "On the Right-of-First-Refusal," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 5(1), pages 1-44, April.
    12. Janssen,Maarten (ed.), 2004. "Auctioning Public Assets," Cambridge Books, Cambridge University Press, number 9780521537575.
    13. Janssen,Maarten (ed.), 2004. "Auctioning Public Assets," Cambridge Books, Cambridge University Press, number 9780521830591.
    14. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
    15. Albert H. Choi, 2009. "A Rent Extraction Theory Of Right Of First Refusal," Journal of Industrial Economics, Wiley Blackwell, vol. 57(2), pages 252-262, June.
    16. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Leandro Arozamena & Federico Weinschelbaum & Juan-José Ganuza, 2021. "Renegotiation and Discrimination in Symmetric Procurement Auctions," Department of Economics Working Papers 2021_09, Universidad Torcuato Di Tella.
    2. Arozamena, Leandro & Ganuza, Juan-José & Weinschelbaum, Federico, 2023. "Renegotiation, discrimination and favoritism in symmetric procurement auctions," European Economic Review, Elsevier, vol. 159(C).
    3. Leandro Arozamena & Nicholas Shunda & Federico Weinschelbaum, 2014. "Optimal nondiscriminatory auctions with favoritism," Economics Bulletin, AccessEcon, vol. 34(1), pages 252-262.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Constantino Hevia & Martin Gonzalez‐Rozada & Martin Sola & Fabio Spagnolo, 2015. "Estimating and Forecasting the Yield Curve Using A Markov Switching Dynamic Nelson and Siegel Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(6), pages 987-1009, September.
    2. Arozamena, Leandro & Weinschelbaum, Federico, 2011. "On favoritism in auctions with entry," Economics Letters, Elsevier, vol. 110(3), pages 265-267, March.
    3. Barbosa, Klenio & Boyer, Pierre C., 2021. "Discrimination in Dynamic Procurement Design with Learning-by-doing," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    4. Arozamena, Leandro & Weinschelbaum, Federico, 2009. "The effect of corruption on bidding behavior in first-price auctions," European Economic Review, Elsevier, vol. 53(6), pages 645-657, August.
    5. Leandro Arozamena & Federico Weinschelbaum & Juan-José Ganuza, 2021. "Renegotiation and Discrimination in Symmetric Procurement Auctions," Department of Economics Working Papers 2021_09, Universidad Torcuato Di Tella.
    6. Branco, Fernando, 2002. "Procurement favouritism and technology adoption," European Economic Review, Elsevier, vol. 46(1), pages 73-91, January.
    7. Maréchal, François & Morand, Pierre-Henri, 2022. "Are social and environmental clauses a tool for favoritism? Analysis of French public procurement contracts," European Journal of Political Economy, Elsevier, vol. 73(C).
    8. Pierre-Henri Morand & François Maréchal, 2021. "Are social and environmental clauses a tool for favoritism? Analysis of French public procurement contracts ," Post-Print hal-03418572, HAL.
    9. Marion, Justin, 2007. "Are bid preferences benign? The effect of small business subsidies in highway procurement auctions," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1591-1624, August.
    10. Chiara Carboni & Elisabetta Iossa & Gianpiero Mattera, 2018. "Barriers towards foreign firms in international public procurement markets: a review," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 45(1), pages 85-107, March.
    11. Chiara Carboni & Elisabetta Iossa & Gianpiero Mattera, 2017. "Barriers to Public Procurement: A Review and Recent Patterns in the EU," IEFE Working Papers 92, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    12. Naegelen, Florence & Mougeot, Michel, 1998. "Discriminatory public procurement policy and cost reduction incentives," Journal of Public Economics, Elsevier, vol. 67(3), pages 349-367, March.
    13. Evenett, Simon J. & Hoekman, Bernard M., 2005. "Government procurement: market access, transparency, and multilateral trade rules," European Journal of Political Economy, Elsevier, vol. 21(1), pages 163-183, March.
    14. Ganuza, Juan-Jose & Hauk, Esther, 2004. "Economic integration and corruption," International Journal of Industrial Organization, Elsevier, vol. 22(10), pages 1463-1484, December.
    15. Hanspach, Philip, 2023. "The home bias in procurement. Cross-border procurement of medical supplies during the Covid-19 pandemic," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    16. Anirudh Shingal, 2015. "Econometric Analyses of Home Bias in Government Procurement," Review of International Economics, Wiley Blackwell, vol. 23(1), pages 188-219, February.
    17. Brulhart, Marius & Trionfetti, Federico, 2004. "Public expenditure, international specialisation and agglomeration," European Economic Review, Elsevier, vol. 48(4), pages 851-881, August.
    18. Huang, He & Li, Zhipeng, 2015. "Procurement auctions with ex-ante endogenous bribery," Economic Modelling, Elsevier, vol. 47(C), pages 111-117.
    19. Arve, Malin, 2014. "Procurement and predation: Dynamic sourcing from financially constrained suppliers," Journal of Public Economics, Elsevier, vol. 120(C), pages 157-168.
    20. Marius BRÜLHART & Federico TRIONFETTI, 2000. "Public Expenditure and International Specialisation," Cahiers de Recherches Economiques du Département d'économie 00.23, Université de Lausanne, Faculté des HEC, Département d’économie.

    More about this item

    Keywords

    auctions; favoritism; nondiscriminatory mechanisms;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:udt:wpecon:2012-03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: María Cecilia Lafuente (email available below). General contact details of provider: https://edirc.repec.org/data/deutdar.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.