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

Research output: Working paperResearch

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.
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.
LanguageEnglish
Place of PublicationFrederiksberg
PublisherCopenhagen Business School [wp]
Number of pages22
StatePublished - 5 Feb 2019
SeriesDepartment of Economics. Copenhagen Business School. Working paper
Number1-2019

Keywords

  • Excess entry
  • Public procurement auctions
  • Optimal fee
  • Sequential search

Cite this

Blomgren-Hansen, N. (2019). Bid Costs and the (In)efficiency of Public Procurement Auctions. Frederiksberg: Copenhagen Business School [wp]. Department of Economics. Copenhagen Business School. Working paper , No. 1-2019
Blomgren-Hansen, Niels. / Bid Costs and the (In)efficiency of Public Procurement Auctions. Frederiksberg : Copenhagen Business School [wp], 2019. (Department of Economics. Copenhagen Business School. Working paper ; No. 1-2019).
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Blomgren-Hansen, N 2019 'Bid Costs and the (In)efficiency of Public Procurement Auctions' Copenhagen Business School [wp], Frederiksberg.

Bid Costs and the (In)efficiency of Public Procurement Auctions. / Blomgren-Hansen, Niels.

Frederiksberg : Copenhagen Business School [wp], 2019.

Research output: Working paperResearch

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Blomgren-Hansen N. Bid Costs and the (In)efficiency of Public Procurement Auctions. Frederiksberg: Copenhagen Business School [wp]. 2019 Feb 5.