Procurement with Costly Bidding, Optimal Shortlisting, and Rebates

Cuihong Fan and Elmar Wolfstetter ()
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Cuihong Fan: Shanghai University of Finance and Economics, School of Economics, Guoding Road 777 200433 Shanghai, China. cuihong@gmx.net

No 166, Discussion Papers from SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We consider the procurement of a complex, indivisible good when bid preparation is costly, assuming a population of heterogeneous contractors. Shortlisting is introduced to implement the optimal number of bidders, and we explore whether the procurer should reimburse the nonrecoverable cost of preparing a bid in whole or in part. We find that a reimbursement policy is profitable for the procurer only if performance and bidding costs are negatively correlated. Moreover, negative rebates (entry fees) always dominate positive rebates.

Keywords: Procurement; Auctions; Entry (search for similar items in EconPapers)
JEL-codes: D44 D45 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com
Date: Written
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Journal Article: Procurement with costly bidding, optimal shortlisting, and rebates (2008)
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