Bid avarage methods in Procurement

Giancarlo Spagnolo, Gian Luigi Albano and Milo Bianchi

MPRA Paper from University Library of Munich, Germany

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 H76 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Bid Average Methods in Procurement (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:8997

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