Scandinavian Working Papers in Economics
Working Papers,
Copenhagen Business School, Department of Economics
No 1-2019: Bid Costs and the (In)efficiency of Public Procurement Auctions
Niels Blomgren-Hansen (nbh.eco@cbs.dk)
Additional contact information
Niels Blomgren-Hansen: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Abstract: The paper analyzes the excess entry hypothesis for sealed-bid first price public procurement auctions.The hypothesis is proved analytically for any feasible combination of bid preparation cost and bid evaluation cost when the bidders face a rectangular cost density function and confirmed in numerical simulations based on a family of flexible cost density functions. The excess entry hypothesis implies that the procurer may reduce both his own cost and the social cost by imposing a positive fee on the bids. Sequential search is a superior strategy to a public procurement auction whether or not the procurer imposes an optimal fee on the bids.
Keywords: Excess entry; Public procurement auctions; Optimal fee; Sequential search
JEL-codes: D21; D43; D44; L13; L51
23 pages, February 5, 2019
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