We study the effects of the recent economic crisis on firms' bidding behavior and markups in sealed bid auctions. Using data from Austrian construction procurements, we estimate bidders' construction costs within a private value auction model. We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points. We also find that without the government stimulus package this decrease would have been larger. These two pieces of evidence point to pro-cyclical markups. (authors' abstract)
Governments as well as private firms face the risk that a contractor goes bankrupt before the completion of the work. In such an environment the possibility to declare bankruptcy makes bidders in a procurement auction bid more aggressively. Among other results we show that revenue equivalence breaks down and that in contrast to the standard auction theory, multi-sourcing, rationing, and other means to soften competition may fare better than a standard auction. We also discuss commonly used methods of how to avoid ruinous bidding and demonstrate that these might fare quite badly. Also, in contrast to the existing literature, cost-plus contracts might be no longer inefficient. In a second step, we extend our analysis to international trade theory and show that the practice of supporting domestic firms with price preferences against international competition leads to the opposite result as intended, namely more bankrupt domestic firms. The last part of this thesis deals with the investigation whether the introduction of compulsory surety bonds mitigates the problem of risky bidding. Since the issuers of the bond are specialized in screening the potential contractors they can evaluate contractors' risks. Hence, they charge a risk-adjusted premium as a compensation for issuing the required surety bond. Our result is that if the bond is priced fairly, full insurance or even overinsurance is optimal. If the surety is priced unfairly, full insurance might be optimal. ; Das größte Problem des öffentlichen und des privaten Auftragswesens sind Konkurse der Auftragnehmer. Diese stellen für die Auftraggeber ein beträchtliches Risiko dar und führen zu immensen Folgekosten. Konkurse von Auftragnehmern entstehen, wenn diese über wenig finanzielle Reserven verfügen und in ihrer Haftung beschränkt sind, was zu einem aggressiverem Bietverhalten führt. In diesem Beitrag wird unter anderem gezeigt, dass das Revenue-Equivalence-Theorem nicht länger gilt und dass multi-sourcing, Rationierung und andere Methoden, die den Wettbewerb ...
We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions. Using data from Austrian construction procurements, we estimate bidders׳ construction costs within a private value auction model. We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points. We also find that without the government stimulus package this decrease would have been larger. These two pieces of evidence point to pro-cyclical markups.
We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions. Using data from Austrian construction procurements, we estimate bidders׳ construction costs within a private value auction model. We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points. We also find that without the government stimulus package this decrease would have been larger. These two pieces of evidence point to pro-cyclical markups.
PurposeThe purpose of the paper is to assess success factors associated with e‐procurement auctions. The impacts of e‐procurement auction success factors on the four indicators of the balanced scorecard are investigated.Design/methodology/approachA survey approach is used to measure the constructs in the proposed model. Respondents were selected from three sectors: private, public, and government organizations using judgment sampling. Data are collected from at least two respondents from purchasing personnel in the e‐procurement user firms. At least one of the respondents is in a managerial position. The sample size is 186, representing 20.4 percent from private enterprises, 33.3 percent from public enterprises, and 46.3 percent from government agencies.FindingsThe survey results show that organizational learning of e‐procurement is influenced by service capability, good governance intention, management support policy, and organizational readiness factors. Service capability and organization learning of e‐procurement influence e‐procurement process improvement. Employee satisfaction can be determined by management support policy and e‐procurement process improvement. Employee satisfaction has the strongest positive impact on financial cost improvement. Management support policy has a negative impact on financial performance improvement. Trust in e‐procurement online intermediaries has no impact on the four measures of the balanced scorecard.Originality/valueThe study contributes to the literature by using the four balanced scorecard indicators to measure the success of e‐procurement to assist organizations to assess performance in terms of organizational learning, internal process improvement, employee satisfaction, and the financial benefit of e‐procurement.
In this paper, we investigate interaction between two firms, which are engaged in a repeated procurement relationship modelled as a multiple criteria auction, and an auctioneer (a government employee) who has discretion in devising the selection criteria. A first result is that, in a one-shot context, favoritism turns the asymmetric information (private cost) procurement auction into a symmetric information auction (in bribes) for a common value prize. In a repeated setting we show that favoritism substantially facilitates collusion. It increases the gains from collusion and contributes to solving basic implementation problems for a cartel of bidders that operates in a stochastically changing environment. A most simple allocation rule where firms take turn in winning independently of stochastic government preferences and firms'costs achieves full cartel efficiency including price, production and design efficiency. In each period the selection criteria is fine-tailored to the in-turn winner: the "environment" adapts to the cartel. This result holds true when the expected punishment is a fixed cost. When the cost varies with the magnitude of the distortion of the selection criteria (compared with the true government's preferences), favoritism only partially shades the cartel from the environment. We thus find that favoritism generally facilitates collusion at a high cost for society. Our analysis suggests some anti-corruption measures that can be effective to curb favoritism and collusion in public markets. It also shows that the rotation of officials is not one of them. ; Dans cet article nous explorons des interactions entre deux firmes, engagées sur un marché public alloué selon la règle du mieux disant et un agent gestionnaire du marché qui a du pouvoir sur la détermination du critère de sélection. Un premier résultat est que dans le cadre d'une interaction unique, le favoritisme transforme l'enchère à valeurs privées avec information asymétrique (sur les coûts) en une enchère (en pot-de-vin) avec information ...
In this paper, we investigate interaction between two firms, which are engaged in a repeated procurement relationship modelled as a multiple criteria auction, and an auctioneer (a government employee) who has discretion in devising the selection criteria. A first result is that, in a one-shot context, favoritism turns the asymmetric information (private cost) procurement auction into a symmetric information auction (in bribes) for a common value prize. In a repeated setting we show that favoritism substantially facilitates collusion. It increases the gains from collusion and contributes to solving basic implementation problems for a cartel of bidders that operates in a stochastically changing environment. A most simple allocation rule where firms take turn in winning independently of stochastic government preferences and firms'costs achieves full cartel efficiency including price, production and design efficiency. In each period the selection criteria is fine-tailored to the in-turn winner: the "environment" adapts to the cartel. This result holds true when the expected punishment is a fixed cost. When the cost varies with the magnitude of the distortion of the selection criteria (compared with the true government's preferences), favoritism only partially shades the cartel from the environment. We thus find that favoritism generally facilitates collusion at a high cost for society. Our analysis suggests some anti-corruption measures that can be effective to curb favoritism and collusion in public markets. It also shows that the rotation of officials is not one of them. ; Dans cet article nous explorons des interactions entre deux firmes, engagées sur un marché public alloué selon la règle du mieux disant et un agent gestionnaire du marché qui a du pouvoir sur la détermination du critère de sélection. Un premier résultat est que dans le cadre d'une interaction unique, le favoritisme transforme l'enchère à valeurs privées avec information asymétrique (sur les coûts) en une enchère (en pot-de-vin) avec information ...
In this paper, we investigate interaction between two firms, which are engaged in a repeated procurement relationship modelled as a multiple criteria auction, and an auctioneer (a government employee) who has discretion in devising the selection criteria. A first result is that, in a one-shot context, favoritism turns the asymmetric information (private cost) procurement auction into a symmetric information auction (in bribes) for a common value prize. In a repeated setting we show that favoritism substantially facilitates collusion. It increases the gains from collusion and contributes to solving basic implementation problems for a cartel of bidders that operates in a stochastically changing environment. A most simple allocation rule where firms take turn in winning independently of stochastic government preferences and firms'costs achieves full cartel efficiency including price, production and design efficiency. In each period the selection criteria is fine-tailored to the in-turn winner: the "environment" adapts to the cartel. This result holds true when the expected punishment is a fixed cost. When the cost varies with the magnitude of the distortion of the selection criteria (compared with the true government's preferences), favoritism only partially shades the cartel from the environment. We thus find that favoritism generally facilitates collusion at a high cost for society. Our analysis suggests some anti-corruption measures that can be effective to curb favoritism and collusion in public markets. It also shows that the rotation of officials is not one of them. ; Dans cet article nous explorons des interactions entre deux firmes, engagées sur un marché public alloué selon la règle du mieux disant et un agent gestionnaire du marché qui a du pouvoir sur la détermination du critère de sélection. Un premier résultat est que dans le cadre d'une interaction unique, le favoritisme transforme l'enchère à valeurs privées avec information asymétrique (sur les coûts) en une enchère (en pot-de-vin) avec information symétrique pour un objet de valeur commune. Dans le cadre d'une interaction répétée, nous montrons que le favoritisme facilite de façon substantielle les ententes anti-concurrentielles. Il augmente le gain de l'entente et contribue à résoudre certains problèmes fondamentaux de mise en oeuvre d'un cartel opérant dans un environnement qui change de manière aléatoire. Une règle de partage très simple permet de réaliser l'efficacité du cartel qui inclut, l'efficacité de prix, de production et de "design". Chaque période, le critère de sélection est "taillé sur mesure" pour la firme dont c'est le tour de gagner : l'environnement s'adapte au cartel. Ce résultat s'applique au cas de punition fixe pour favoritisme. Lorsque la punition varie avec l'étendue de la distorsion du critère de sélection (par rapport aux préférences publiques), le favoritisme protége partiellement le cartel des fluctuations de l'environnement. Nous trouvons que le favoritisme généralement facilite les ententes à un coût élevé pour la société. Notre analyse suggère certaines mesures anticorruption qui peuvent être très efficaces pour réduire l'étendue du favoritisme et des ententes. Elle montre aussi que la rotation des agents n'est pas une mesure efficace.
In this paper, we investigate interaction between two firms, which are engaged in a repeated procurement relationship modelled as a multiple criteria auction, and an auctioneer (a government employee) who has discretion in devising the selection criteria. A first result is that, in a one-shot context, favoritism turns the asymmetric information (private cost) procurement auction into a symmetric information auction (in bribes) for a common value prize. In a repeated setting we show that favoritism substantially facilitates collusion. It increases the gains from collusion and contributes to solving basic implementation problems for a cartel of bidders that operates in a stochastically changing environment. A most simple allocation rule where firms take turn in winning independently of stochastic government preferences and firms'costs achieves full cartel efficiency including price, production and design efficiency. In each period the selection criteria is fine-tailored to the in-turn winner: the "environment" adapts to the cartel. This result holds true when the expected punishment is a fixed cost. When the cost varies with the magnitude of the distortion of the selection criteria (compared with the true government's preferences), favoritism only partially shades the cartel from the environment. We thus find that favoritism generally facilitates collusion at a high cost for society. Our analysis suggests some anti-corruption measures that can be effective to curb favoritism and collusion in public markets. It also shows that the rotation of officials is not one of them. ; Dans cet article nous explorons des interactions entre deux firmes, engagées sur un marché public alloué selon la règle du mieux disant et un agent gestionnaire du marché qui a du pouvoir sur la détermination du critère de sélection. Un premier résultat est que dans le cadre d'une interaction unique, le favoritisme transforme l'enchère à valeurs privées avec information asymétrique (sur les coûts) en une enchère (en pot-de-vin) avec information symétrique pour un objet de valeur commune. Dans le cadre d'une interaction répétée, nous montrons que le favoritisme facilite de façon substantielle les ententes anti-concurrentielles. Il augmente le gain de l'entente et contribue à résoudre certains problèmes fondamentaux de mise en oeuvre d'un cartel opérant dans un environnement qui change de manière aléatoire. Une règle de partage très simple permet de réaliser l'efficacité du cartel qui inclut, l'efficacité de prix, de production et de "design". Chaque période, le critère de sélection est "taillé sur mesure" pour la firme dont c'est le tour de gagner : l'environnement s'adapte au cartel. Ce résultat s'applique au cas de punition fixe pour favoritisme. Lorsque la punition varie avec l'étendue de la distorsion du critère de sélection (par rapport aux préférences publiques), le favoritisme protége partiellement le cartel des fluctuations de l'environnement. Nous trouvons que le favoritisme généralement facilite les ententes à un coût élevé pour la société. Notre analyse suggère certaines mesures anticorruption qui peuvent être très efficaces pour réduire l'étendue du favoritisme et des ententes. Elle montre aussi que la rotation des agents n'est pas une mesure efficace.
Procurement auctions are sometimes plagued with a chosen supplier's failing to accomplish a project successfully. The risk of project failure is considerable, especially when the buyer has inadequate information about suppliers ex ante and the project can only be evaluated at the end. To manage such uncertainty, a model of competitive procurement and contracting for a project is presented in this paper. We study a setting in which suppliers differ in both the costs to fulfill the project and the types reflecting their success probabilities. To screen suppliers, the buyer invites suppliers to specify a two-dimensional bid composed of the proposed cost and a penalty payment if the delivered project fails to meet the requirements. We find that a quasi-linear scoring rule can effectively separate suppliers regarding their types. We then study the efficient and optimal design of the scoring rule. The efficient design internalizes the inferred information on suppliers' type and essentially ranks suppliers based on the expected total cost to the buyer. In the optimal design, the buyer may or may not under-reward suppliers' high success probability, depending on the balance between suppliers' success probabilities and the associated cost distributions. Interestingly, it is always optimal for the buyer to possibly award the project to suppliers with low success probability to promote the competition, even when the difference in suppliers' success probabilities is huge. We show that, compared to standard auctions, the procurement auctions with contingent contracts can significantly improve both social welfare and the buyer's payoff.
AbstractWe analyze a regime change from beauty contests to first‐price sealed‐bid and scoring auctions, using Swedish data on public procurement of cleaning services. In beauty contests, the lowest bid often lost, leaving substantial money on the table. The procurement costs were similar before and after the regime change: (i) Entry strongly decreases the procurement cost but did not change. Entry would have decreased had the municipalities not adjusted the objects of auctions. (ii) Municipalities favored in‐house suppliers in the old regime, leading to more aggressive bidding by others. With favoritism reduced, these changes balanced each other out.
