Auctions Versus Negotiations in Procurement: An Empirical Analysis

Patrick Bajari, Robert S. McMillan and Steven Tadelis

No 9757, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Should the buyer of a customized good use competitive bidding or negotiation to select a contractor? To shed light on this question, we offer a framework that compares auctions with negotiations. We then examine a comprehensive data set of private sector building contracts awarded in Northern California during the years 1995-2000. The analysis suggests a number of potential limitations to the use of auctions. Auctions perform poorly when projects are complex, contractual design is incomplete and there are few available bidders. Furthermore, auctions stifle communication between buyers and the sellers, preventing the buyer from utilizing the contractor's expertise when designing the project. Some implications of these results for procurement in the public sector are discussed.

JEL-codes: D23 L0 (search for similar items in EconPapers)
Date: 2003-06
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
Note: IO
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Citations: View citations in EconPapers (20)

Published as Bajari, Patrick, Steve Tadelis, and Rob McMillan. "Auctions versus Negotiations in Procurement: An Empirical Analysis." Journal of Law, Economics and Organization 25, 2 (2009): 372-399.

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Journal Article: Auctions Versus Negotiations in Procurement: An Empirical Analysis (2009)
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