The Value of a Right of First Refusal Clause in a Procurement First-Price Auction

Karine Brisset (karine.brisset@univ-fcomte.fr), Francois Cochard and François Maréchal (francois.marechal@univ-fcomte.fr)
Additional contact information
Karine Brisset: CRESE, Université de Franche-comté
François Maréchal: CRESE, Université de Franche-comté

No 2012-03, Working Papers from CRESE

Abstract: In a procurement first-price sealed-bid auction with risk-averse suppliers, we determine the conditions under which the buyer has an incentive to grant a supplier a right of first refusal. We show that this clause can lower the buyer's expected cost when suppliers (the incumbent and new suppliers) are risk-neutral or slightly risk-averse. We also show that the incumbent's expected utility is higher when he is granted a right of first refusal than when he competes under a first-price auction. So, this clause may benefit both the buyer and the favored supplier.

Keywords: auctions; right of first refusal; risk-aversion (search for similar items in EconPapers)
JEL-codes: D44 D81 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2012-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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