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Preferred Suppliers in Asymmetric Auction Markets

Author

Listed:
  • Roberto Burguet
  • Martin K. Perry

Abstract

This paper examines preference in procurement with asymmetric suppliers. The preferred supplier has a right-of-first-refusal to obtain the contract at a price equal to the bid of a competing supplier. Despite the inefficiency created by the right-of-first-refusal, preference increases the joint surplus of the buyer and the preferred supplier. The buyer can increase his surplus by holding a pre-auction for the right-of-first-refusal. This is true even when the ex ante stronger supplier wins this pre-auction for preference.

Suggested Citation

  • Roberto Burguet & Martin K. Perry, 2014. "Preferred Suppliers in Asymmetric Auction Markets," Working Papers 791, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:791
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    References listed on IDEAS

    as
    1. Marvel, Howard P, 1982. "Exclusive Dealing," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 1-25, April.
    2. Roberto Burguet & Martin K. Perry, 2009. "Preferred suppliers in auction markets," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 283-295, June.
    3. Waehrer, Keith, 1999. "Asymmetric private values auctions with application to joint bidding and mergers," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 437-452, April.
    4. Thomas, Charles J., 2011. "Vertical mergers in procurement markets," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 200-209, March.
    5. Lebrun, Bernard, 1999. "First Price Auctions in the Asymmetric N Bidder Case," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 125-142, February.
    6. Lee, Joon-Suk, 2008. "Favoritism in asymmetric procurement auctions," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1407-1424, November.
    7. 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.
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    Cited by:

    1. Huang, Yangguang & Xia, Jijun, 2019. "Procurement auctions under quality manipulation corruption," European Economic Review, Elsevier, vol. 111(C), pages 380-399.

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    More about this item

    Keywords

    procurement auctions; vertical integration; bargaining solutions;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other

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