Auctions vs negotiations in public procurement: which Works better?

Rafael Lalive, Armin Schmutzler and Christine Zulehner

No 209, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: Public agencies mainly rely on two modes to procure goods and services: auctions and direct negotiations. We study a 1994 policy change in Germany that introduced the possibility to procure rail services in auctions as well as in direct negotiations with the incumbent. We analyze the effect of the procurement mode on service frequency and procurement price. Our analysis relies on self-collected data on the frequency of rail service on about 500 rail lines. We first develop a theoretical framework to study an agency’s decision on the procurement mode. We then use this framework to guide our empirical analysis on rail service, procurement price, and choice of procurement mode. Results indicate that, compared with negotiations, auctions improve service levels and reduce prices. As a result, surplus on auctioned lines increased by about 30%. Interestingly, surplus would also have increased by 16% on negotiated lines had auctions been used. We argue that the predominance of non-competitive modes reflects (actual or perceived) administrative costs of carrying out auctions.

Keywords: Auctions; negotiations; liberalization; passenger railways; public procurement (search for similar items in EconPapers)
JEL-codes: D43 D44 R48 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.zora.uzh.ch/id/eprint/115738/1/econwp209.pdf (application/pdf)

Related works:
Working Paper: Auctions vs Negotiations in Public Procurement: Which Works Better? (2011)
Working Paper: Auctions vs negotiations in public procurement: which works better? (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:209

Access Statistics for this paper

More papers in ECON - Working Papers from Department of Economics - University of Zurich Contact information at EDIRC.
Bibliographic data for series maintained by Severin Oswald ().