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

Niels Blomgren-Hansen ()
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Niels Blomgren-Hansen: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark

No 1-2019, Working Papers from Copenhagen Business School, Department of Economics

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.

Keywords: Excess entry; Public procurement auctions; Optimal fee; Sequential search (search for similar items in EconPapers)
JEL-codes: D21 D43 D44 L13 L51 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2019-02-05
New Economics Papers: this item is included in nep-des, nep-gth and nep-reg
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