Auctions versus Negotiations in Procurement: An Empirical Analysis

Patrick Bajari, Robert McMillan and Steven Tadelis

Working Papers from Stanford University, Department of Economics

Abstract: Revised October 2002

When should a buyer award a procurement contract through competitive bidding, and when would negotiating with the sellers be preferred? To shed some light on this question, we examine a unique data set of non-residential, private sector building contracts awarded in Northern California during the years 1995-2000. Our analysis suggests a number of limitations to the use of auctions, as compared to negotiations, that we believe are new to the literature. First, auctions perform poorly when projects are complex and contractual design is incomplete. Second, the benefits to auctions fall when the number of available bidders decreases. Third, auctions stifle communication between the buyer and the contractor, preventing the buyer from taking advantage of the contractor’s expertise when choosing how to design the project. Finally, auctions fail to protect the privacy of the buyer and involve increased administrative expenses and delay.

Working Papers Index

New Economics Papers: this item is included in nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://www-econ.stanford.edu/faculty/workp/swp02007.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www-econ.stanford.edu/faculty/workp/swp02007.pdf [301 Moved Permanently]--> https://www-econ.stanford.edu/faculty/workp/swp02007.pdf [307 Temporary Redirect]--> https://economics.stanford.edu//faculty/workp/swp02007.pdf)

Related works:
Journal Article: Auctions Versus Negotiations in Procurement: An Empirical Analysis (2009)
Working Paper: Auctions Versus Negotiations in Procurement: An Empirical Analysis (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wop:stanec:02007

Access Statistics for this paper

More papers in Working Papers from Stanford University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().