Public Procurement vs. Regulated Competition in Selection Markets

José Ignacio Cuesta and Pietro Tebaldi

No 34141, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A common approach to markets with adverse selection is to regulate competition to minimize inefficiencies, while preserving consumer choice among firms. We study the role of procurement auctions—leading to sole provision by the winning firm—as an alternative market design. Relative to regulated competition, auctions affect product variety, quality, markups, and remove cream-skimming incentives. We develop a framework to study this comparison and apply it to individual health insurance in the US. We find that procurement auctions would increase consumer welfare in most markets, mainly by limiting inefficiencies from adverse selection and market power, and by increasing quality.

JEL-codes: H42 I13 L13 (search for similar items in EconPapers)
Date: 2025-08
New Economics Papers: this item is included in nep-com, nep-cta, nep-des, nep-hea, nep-ind, nep-mic and nep-reg
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