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On the benefits of set-asides

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  • Lamy, Laurent
  • Jehiel, Philippe

Abstract

Set-asides programs which consist in forbidding access to specific participants are commonly used in procurement auctions. We show that when the set of potential participants is composed of an incumbent (who bids for sure if allowed to) and of entrants who show up endogenously (in such a way that their expected rents are fixed by outside options), then it is always beneficial to exclude the incumbent in the second-price auction. This exclusion principle carries over to other auction formats that favor the incumbent and also to some environments with multiple incumbents. Whether it could be beneficial to exclude some kinds of entrants is also addressed. Various applications are discussed.

Suggested Citation

  • Lamy, Laurent & Jehiel, Philippe, 2016. "On the benefits of set-asides," CEPR Discussion Papers 11564, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11564
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    Cited by:

    1. Alcalde, José & Dahm, Matthias, 2020. "Affirmative Action Through Endogenous Set-Asides," QM&ET Working Papers 20-1, University of Alicante, D. Quantitative Methods and Economic Theory.
    2. Matilde Cappelletti & Leonardo M. Giuffrida, 2024. "Targeted Bidders in Government Tenders," CESifo Working Paper Series 11142, CESifo.
    3. José Alcalde & Matthias Dahm, "undated". "Supplier Diversity before the Time of Cholera," Discussion Papers in Economics 20/07, Division of Economics, School of Business, University of Leicester.
    4. Lamy, Laurent & Patnam, Manasa & Visser, Michael, 2023. "Distinguishing incentive from selection effects in auction-determined contracts," Journal of Econometrics, Elsevier, vol. 235(2), pages 1172-1202.
    5. Alcalde, José & Dahm, Matthias, 2024. "On the trade-off between supplier diversity and cost-effective procurement," Journal of Economic Behavior & Organization, Elsevier, vol. 217(C), pages 63-90.
    6. Chen, Jiafeng & Kominers, Scott Duke, 2021. "Auctioneers sometimes prefer entry fees to extra bidders," International Journal of Industrial Organization, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Set-asides; Auctions with endogenous entry; Entry deterrence; Asymmetric buyers; Incumbents; Government procurement;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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