Auctions vs. Negotiations: The Case of Favoritism

Achim Wambach and Vitali Gretschko

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: We compare two commonly used mechanisms in procurement: auctions and negotiations. The execution of the procurement mechanism is delegated to an agent of the buyer. The agent has private information about the buyer s preferences and may collude with one of the sellers. We provide a precise definition of both mechanisms and show contrary to conventional wisdom that an intransparent negotiation yields a higher buyer surplus than a transparent auction for a range of parameters. In particular, for small expected punishments there exists a lower and an upper bound on the number of sellers such that the negotiation yields a higher buyer surplus with a probability arbitrary close to 1 in the parameter space. Moreover, if the expected punishment is small, the negotiation is always more efficient and generates a higher surplus for the sellers.

JEL-codes: D44 D73 H57 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Auctions vs. Negotiations: The Case of Favoritism (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc13:79774

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