Auctions vs. Negotiations: The Case of Favoritism
We compare two commonly used mechanisms in procurement: auctions and negotiations. The execution of the procurement mechanism is delegated to an agent of the buyer. The agent has private information about the buyer s preferences and may collude with one of the sellers. We provide a precise definition of both mechanisms and show contrary to conventional wisdom that an intransparent negotiation yields a higher buyer surplus than a transparent auction for a range of parameters. In particular, for small expected punishments there exists a lower and an upper bound on the number of sellers such that the negotiation yields a higher buyer surplus with a probability arbitrary close to 1 in the parameter space. Moreover, if the expected punishment is small, the negotiation is always more efficient and generates a higher surplus for the sellers.
|Date of creation:||2013|
|Contact details of provider:|| Web page: http://www.socialpolitik.org/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Federico Weinschelbaum & Leandro Arozamena, 2005.
"The Effect of Corruption on Bidding Behavior in First-Price Auctions,"
82, Universidad de San Andres, Departamento de Economia, revised Aug 2005.
- 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.
- Federico Weinschelbaum & Leandro Arozamena, 2004. "The Effect of Corruption on Bidding Behavior in First-Price Auctions," Econometric Society 2004 Latin American Meetings 180, Econometric Society.
- Marco Celentani & Juan J. Ganuza, 2000.
"Corruption and competition in procurement,"
Economics Working Papers
464, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2001.
- Menezes, Flavio M. & Monteiro, Paulo Klinger, 2006.
"Corruption and auctions,"
Journal of Mathematical Economics,
Elsevier, vol. 42(1), pages 97-108, February.
- Burguet Roberto & Perry Martin K, 2007.
"Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions,"
The B.E. Journal of Theoretical Economics,
De Gruyter, vol. 7(1), pages 1-27, June.
- Roberto Burguet & Martin Perry, 2000. "Bribery and Favoritism by Auctioneers in Sealed Bid Auctions," Econometric Society World Congress 2000 Contributed Papers 1827, Econometric Society.
- Roberto Burguet & Martin Perry, 2002. "Bribery and Favoritism by Auctioneers in Sealed Bid Auctions," Departmental Working Papers 200205, Rutgers University, Department of Economics.
- Fluck, Zsuzsanna & John, Kose & Ravid, S. Abraham, 2007. "Privatization as an agency problem: Auctions versus private negotiations," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2730-2750, September.
- Athey, S., 1997.
"Sigle Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information,"
97-11, Massachusetts Institute of Technology (MIT), Department of Economics.
- Athey, Susan, 2001. "Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Econometrica, Econometric Society, vol. 69(4), pages 861-889, July.
- McMillan, John, 1995. "Why auction the spectrum?," Telecommunications Policy, Elsevier, vol. 19(3), pages 191-199, April.
- Lengwiler, Yvan & Wolfstetter, Elmar, 2010. "Auctions and corruption: An analysis of bid rigging by a corrupt auctioneer," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 1872-1892, October.
- Manelli, Alejandro M & Vincent, Daniel R, 1995.
"Optimal Procurement Mechanisms,"
Econometric Society, vol. 63(3), pages 591-620, May.
- Andrea Prat & Tommaso M. Valletti, 2001. "Spectrum Auctious Versus Beauty Contests: Costs and Benefits," Rivista di Politica Economica, SIPI Spa, vol. 91(4), pages 65-114, April-May.
- Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
- David McAdams & Michael Schwarz, 2007. "Credible Sales Mechanisms and Intermediaries," American Economic Review, American Economic Association, vol. 97(1), pages 260-276, March.
- Florence Naegelen, 2002. "original papers : Implementing optimal procurement auctions with exogenous quality," Review of Economic Design, Springer;Society for Economic Design, vol. 7(2), pages 135-153.
When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc13:79774. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.