Public procurements with secret reserve prices and negotiation: an auction theoretic analysis for the private values case
DOI:
https://doi.org/10.1590/1980-53575242mbapKeywords:
Public procurement auctions, Public reservation price, Secret reservation price, Ex post negotiation in procurementsAbstract
This article compares alternative mechanism designs for the procurement of public works or services. It analyzes the simple reverse auction with no reservation price, the reverse auction with public reservation price, with secret reservation price and, finally, with secret reservation price and the possibility of negotiation when the winning bid is above the reservation price. We make use of the framework of auction theory with symmetric, independent, and identically distributed private values and risk neutral participants. The theoretical analysis and the simulations suggest that setting a reservation price yields better results for the government.
Moreover, it is more advantageous to announce the reservation price if this price is low, and
more advantageous to keep it secret if that price is high. Ex post negotiation in the secret reserve
price model induces an increase in participants’ bids. However, if the social welfare that
the public works or services create sufficiently exceeds its reservation cost, then the negotiation
mechanism may be desirable.
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Funding data
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Conselho Nacional de Desenvolvimento Científico e Tecnológico
Grant numbers 308830/2019-9
