Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/69588
Authors: 
Gretschko, Vitali
Wambach, Achim
Year of Publication: 
2012
Series/Report no.: 
CESifo Working Paper: Industrial Organisation 4045
Abstract: 
We compare two commonly used mechanisms in procurement: auctions and negotiations. The execution of the procurement mechanism is delegated to an agent of the buyer. The agent has private information about the buyer's preferences and may collude with one of the sellers. We provide a precise definition of both mechanisms and show - contrary to conventional wisdom - that an intransparent negotiation yields a higher buyer surplus than a transparent auction for a range of parameters. In particular, for small expected punishments there exists a lower and an upper bound on the number of sellers such that the negotiation yields a higher buyer surplus with a probability arbitrary close to 1 in the parameter space. Moreover, if the expected punishment is small, the negotiation is always more efficient and generates a higher surplus for the sellers.
Subjects: 
corruption
auctions
negotiations
public procurement
JEL: 
D44
D73
L13
H57
Document Type: 
Working Paper

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