WELFARE LOSS IN LINEAR PRICE-PREFERENCE PROCUREMENT AUCTIONS

Winston Koh

International Game Theory Review (IGTR), 2007, vol. 09, issue 04, 719-730

Abstract: In government procurement auctions, discrimination in favor of one group of participants (e.g. domestic firms, minority bidders) over another group is a common practice. The optimal discriminatory rules for these auctions are typically non-linear and could be administratively complex and costly to implement. In practice, procurement auctions are usually organized as sealed-bid first-price auction with a simple percentage price-preference policy. In this paper, we analyze a model with two bidders that draw their costs from a common uniform distribution, and derive an upper bound to the welfare loss resulting from the use of linear-price preference auctions.

Keywords: Discriminatory auction; price-preference; public procurement; government tender; JEL Classification Numbers: D44; JEL Classification Numbers: H57 (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1142/S0219198907001680

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