Managing risky bids

Engel, Andreas R.; Ganuza, Juan-José; Hauk, Esther; Wambach, Achim

doi:10.1017/cbo9780511492556.014

Cited by 17 publications

(22 citation statements)

References 14 publications

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“…The only two previous studies in the literature that analyzed it, Engel et al. () and Spagnolo et al. (), characterized its properties, but under restrictive assumptions on the number of bidders and their cost and information.…”

Section: Introductionmentioning

confidence: 99%

Comparing Public Procurement Auctions

Decarolis

2018

Int Economic Review

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This article contrasts two auction formats often used in public procurement: first price auctions with ex post screening of bid responsiveness and average bid auctions (ABAs), in which the bidder closest to the average bid wins. The equilibrium analysis reveals that their ranking is ambiguous in terms of revenues, but the ABA is typically less efficient. Using a data set of Italian public procurement auctions run alternately under the two formats, a structural model of bidding is estimated for the subsample of first price auctions and used to quantify the efficiency loss under counterfactual ABAs. * Manuscript and Economic Research Association for bidders to collude; Chang et al. (2015) analyze the ABA in a common value environment; Galavotti et al. (2015) consider the IPV case, but through the framework of level-k thinking; and Eun (2015) analyzes bidding in a closely related procurement format used in Korea. Regarding the FPA with screening, this article is mostly related to the recent work of Bajari et al. (2014), who analyze bidding and adaptation costs in U.S. procurement auctions. The second contribution is to complement the theoretical comparison of ABAs and FPAs with screening with a quantitative analysis of their performance in a major procurement market. Auctions are typically very persistent institutions so that format changes are rarely observed. Only a few other studies, mostly involving public auctions in the United States, have presented this type of comparative analysis: Athey et al. (2011) compare open versus sealed bid auctions used for the sale of timber harvesting contracts, Lewis and Bajari (2011) compare first price versus scoring rule with time incentive auctions for the procurement of roadwork contracts, and Marion (2007) compares first price versus first price with small-business bid subsidy for roadwork contracts. 4 For Italian public procurement, two complementary studies, Decarolis (2014) and Branzoli and Decarolis (2015), present a difference-in-differences analysis of the effects of switching from ABAs to FPAs with screening on observable quantities: the winning bid and the ex post contractual performance in the first study and the entry and subcontracting choices in the second study. In this article, I structurally estimate firms' underlying costs from a sample of FPAs with screening and quantify the efficiency loss in counterfactual ABAs. 5 The findings in the aforementioned papers of Decarolis (2014) and Branzoli and Decarolis (2015), along with the results in Conley and Decarolis (2016) on collusion in ABAs, are used in this article to guide the complex construction of an appropriate counterfactual ABA. Methodologically, the article contributes by showing how the structural estimation can be performed by extending

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Section: Introductionmentioning

confidence: 99%

Comparing Public Procurement Auctions

Decarolis

2018

Int Economic Review

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“…In situations involving larger numbers of bidders, additional rules may be used such as excluding high and low bids from consideration as an attempt to further eliminate outliers. Engel, Ganuza, Hauk, and Wambach (2006) discusses how this mechanism is implemented in Switzerland while Decarolis (2013) and Conley and Decarolis (2012) provide an extensive description and data on how the mechanism is used in Italy. There are other sorts of exclusions sometimes used such as in Peru and in the State of New York where the elimination criterion is based on the di¤erence between bids and the average bid.…”

Section: Introductionmentioning

confidence: 99%

An Investigation of the Average Bid Mechanism for Procurement Auctions

2015

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In a procurement context, it can be quite costly for a buyer when the winning seller underestimates the cost of a project and then defaults on the project midway through completion. The Average Bid Auction is one mechanism intended to help address this problem. This format involves awarding the contract to the bidder who has bid closest to the average of the bids submitted. We compare the performance of this mechanism with the standard Low Price mechanism to determine how successful the Average Bid format is in preventing bidder losses as well as its impact on the price paid by the buyer. We …nd the Average Bid mechanism to be more successful than expected due to the surprising fact that bidding behavior remains similar between the Average Bid and Low Price auctions. We provide an explanation for the bidding behavior in the Average Bid auction that is based on subjects having problems processing signals near the extremes of the distribution.JEL Codes: C91, D44, D82

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“…The ALTC in expressions (4) and (6) are among the six generic ALTC identified by Ballesteros-Pérez et al (2015) in construction auctions worldwide. Engel et al (2006) have argued that interdependent ALTC will lead firms to bid higher so as to avoid the risk of exclusion, whereas Ballesteros-Pérez et al (2015) have found that, when competing under independent ALTC, most bidders place their bids just before crossing the economic threshold, so as to avoid losing as much economic score as possible despite giving up some profits. These results seem to suggest that the price paid by the buyer might be higher under interdependent ALTC, but investigating this conjecture in the data requires controlling for differences in economic thresholds between ALTC.…”

Section: Price Scoring Rules and Abnormally Low Tenders Criteria In Smentioning

confidence: 99%

Weight Values, Scoring Rules and Abnormally Low Tenders Criteria in Multidimensional Procurement: Effects on Price

González¹,

Zaragoza²

2019

HPE-RPE

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Many weighing functions are currently in use for evaluating quotes in multidimensional procurement. Although these may affect the price paid by the buyer, their design has been little informed by empirical considerations. This paper studies the impacts of weight values, scoring rules, and abnormally low tenders criteria (ALTC) in an original sample of procurements of services. The panel dimension of the data and the rich set of procurement characteristics are exploited to show that convex price scoring rules (PSRs) and increases in the weight for price yield lower prices, whereas independent/interdependent PSRs and different ALTC result in the same price.

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Managing risky bids

Cited by 17 publications

References 14 publications

Comparing Public Procurement Auctions

Comparing Public Procurement Auctions

An Investigation of the Average Bid Mechanism for Procurement Auctions

Weight Values, Scoring Rules and Abnormally Low Tenders Criteria in Multidimensional Procurement: Effects on Price

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