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Do Combinatorial Procurement Auctions Lower Cost? - An Empirical Analysis of Public Procurement of Multiple Contracts

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  • Lunander, Anders

    (Swedish Business School)

  • Lundberg, Sofia

    (Department of Economics, Umeå University)

Abstract

Combinatorial procurement auctions are desirable as they enable bidding firms to pass their potential cost synergies on to the procuring entity and may lead to a reduction in cost for the procuring entity and enhancing efficiency. However, an assessment of the benefits of the combinatorial mechanism, based on the observed package discounts, is likely to overstate the true cost savings generated by the mechanism. The option for a firm to submit bids on bundles of contracts gives rise to a strategic effect because a firm’s stand-alone bids compete with its package bids. Therefore, bidders might find it profitable to inflate their stand-alone bids in order to favour their package bids. Using data from first-price procurement auctions of single and multiple contracts, with and without the option to submit package bids, we find that firms inflate their stand alone bids in the combinatorial auctions compared to their corresponding bids in standard first-price procurement auctions. Further, the analysis does not show significant differences in the procurer’s cost by type of auction.

Suggested Citation

  • Lunander, Anders & Lundberg, Sofia, 2009. "Do Combinatorial Procurement Auctions Lower Cost? - An Empirical Analysis of Public Procurement of Multiple Contracts," Umeå Economic Studies 776, Umeå University, Department of Economics, revised 16 Sep 2009.
    • Handle: RePEc:hhs:umnees:0776
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    Cited by:

    1. Hultkrantz, Lars & Lunander, Anders, 2013. "Design of a Combinatorial Bidding Market for Green Corridor Freight," Working Papers 2013:6, Örebro University, School of Business.

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    More about this item

    Keywords

    Combinatorial procurement auctions; Contract bidding;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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