Bid Average Methods in Procurement

Gian Luigi Albano (), Milo Bianchi and Giancarlo Spagnolo
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Gian Luigi Albano: Consip S.p.A., Rome

Rivista di Politica Economica, 2006, vol. 96, issue 1, 41-62

Abstract: Procurement awarding mechanisms based on average price have been advocated to soften price competition and reduce cost overruns. We show that their theoretical support is shaky. When the bid closest to the average is awarded, firms submit identical bids, making the selection extremely costly and random, without reducing opportunistic behaviors ex-post. When instead the bid closest and below the average is awarded, the equilibrium is very sensitive to firms' production and participation costs. Either it displays tougher competition than in a first price auction, or it induces firms to randomize their bids.

JEL-codes: D44 H57 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (24)

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Working Paper: Bid avarage methods in Procurement (2006)
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