Work

Auctions Versus Negotiations in Procurement: An Empirical Analysis

Year: 2008

Type: article

Abstract: Should the buyer of a customized good use competitive bidding or negotiation to select a contractor? To shed light on this question, we consider several possible determinants that may influence the choice of auctions versus 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 possible limitations to the use of auctions. Auctions may perform poorly when projects are complex, contractual design is incomplete, and there are few available bidders. Furthermore, auctions may stifle communication between buyers and 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 D23, D82, H57, L14, L22, L74).

Source: The Journal of Law Economics and Organization

DOI: 10.1093/jleo/ewn002

Authors: P. Bajari, R. McMillan, S. Tadelis

Institutions: University of Minnesota, Federal Trade Commission, University of California, Berkeley

Language: English

Topic: Auction Theory and Applications

Subfield: Management Science and Operations Research

Field: Decision Sciences

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $4,106