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Bid Costs and the (In)efficiency of Public Procurement Auctions

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  • Blomgren-Hansen, Niels

    (Department of Economics, Copenhagen Business School)

Abstract

The paper analyzes the excess entry hypothesis for sealed-bid first price public procurement auctions.The hypothesis is proved analytically for any feasible combination of bid preparation cost and bid evaluation cost when the bidders face a rectangular cost density function and confirmed in numerical simulations based on a family of flexible cost density functions. The excess entry hypothesis implies that the procurer may reduce both his own cost and the social cost by imposing a positive fee on the bids. Sequential search is a superior strategy to a public procurement auction whether or not the procurer imposes an optimal fee on the bids.

Suggested Citation

  • Blomgren-Hansen, Niels, 2019. "Bid Costs and the (In)efficiency of Public Procurement Auctions," Working Papers 1-2019, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:2019_001
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    Keywords

    Excess entry; Public procurement auctions; Optimal fee; Sequential search;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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