Do Auctions Improve Public Procurement? Evidence from the Czech Republic

• Authors: Michal Kvasnička , Rostislav Staněk , Ondřej Krčál
• Languages of publication: EN

Abstracts

EN

This paper explores the effect of various contract-awarding procedures in public procurement on the price of the contract. We provide a theoretical model that compares prices in different procedures and tests whether there is a significant price difference between the procedures using data from Czech public procurement. The model predicts that auctions are more efficient than negotiations given the same number of suppliers, and open procedures are more efficient than closed procedures if high-cost firms are selected for the closed procedure. In accordance with the first prediction, we find that open auctions are more efficient than open negotiations. Concerning the second prediction, we find that closed procedures are less efficient than open procedures, which suggests that procurers tend to select relatively more costly firms to participate in closed procedures. Comparing all four awarding procedures, we find that open auctions are the most efficient procedure used in the Czech Republic. We estimate that the inefficiencies due to the use of other contract-awarding procedures are substantial.

Keywords

EN

Auctions; Negotiations; Public Procurement; Contract-awarding Procedures

• Publisher: Sciendo
• Journal: DANUBE: Law and Economics Review
• Year: 2015
• Volume: 6
• Issue: 4
• Pages: 241-257

Dates

published

2015-12-01

online

2016-01-06

Contributors

author

Michal Kvasnička

• Department of Economics, Faculty of Economics and Administration, Masaryk University, Lipová 41a, 602 00 Brno, Czech Republic.

author

Rostislav Staněk

• Department of Economics, Faculty of Economics and Administration, Masaryk University, Lipová 41a, 602 00 Brno, Czech Republic.

author

Ondřej Krčál

• Department of Economics, Faculty of Economics and Administration, Masaryk University, Lipová 41a, 602 00 Brno, Czech Republic.

References

• Bajari, P., McMillan, R. & Tadelis, S. (2009). Auctions versus negotiations in procurement: an empirical analysis. Journal of Law, Economics, and Organization, 25(2), 372–399.[Crossref][WoS]
• Bajari, P. & Tadelis, S. (2001). Incentives versus transaction costs: A theory of procurement contracts. RAND Journal of Economics, and Organization, 32(3), 387–407.[Crossref]
• Bulow, J. & Klemperer, S. (1996). Auctions versus Negotiations. The American Economic Review, 86(1), 180–194.
• Heijboer, G. & Telgen, J. (2002). Choosing the open or restricted procedure: a big deal or a big deal? Journal of Public Procurement, 2(2), 187–215.
• Hong, H. & Shum, M. (2002). Increasing competition and the winner’s curse: Evidence from procurement? Review of Economic Studies, 69(241), 871–898.[Crossref]
• Kjerstad, E. (2005). Auctions vs negotiations: A study of price differentials. Health Economics, 14(12), 1239–1251.[Crossref]
• Lalive, R., & Schmutzler, A. (2011). Auctions vs Negotiations in Public Procurement: Which Works Better?. SSRN Working Paper Series.
• Levin, D. & SMITH, J. L. (1994). Equilibrium in auctions with entry. The American Economic Review, 84(3), 585–599.[WoS]
• Li, T., & Zheng, X. (2009). Entry and competition effects in first-price auctions: theory and evidence from procurement auctions. The Review of Economic Studies, 76(4), 1397–1429.[Crossref][WoS]
• Marshall, R. C. & Marx, L. M. (2007). Bidder collusion. Journal of Economic Theory, 133(1), 374–402.
• Vellez, M. (2011). Auctions versus negotiations: Evidence from public procurement in the Italian healthcare sector. CEIS Tor Vergata, 9(4), 191.

Identifiers

DOI

10.1515/danb-2015-0015