Procurement with Costly Bidding, Optimal Shortlisting, and Rebates

Fan, Cuihong and Wolfstetter, Elmar G. (September 2006): Procurement with Costly Bidding, Optimal Shortlisting, and Rebates. SFB/TR 15 Discussion Paper No. 166

Abstract

We consider the procurement of a complex, indivisible good when bid preparation is costly, assuming a population of heterogeneous contractors. Shortlisting is introduced to implement the optimal number of bidders, and we explore whether the procurer should reimburse the nonrecoverable cost of preparing a bid in whole or in part. We find that a reimbursement policy is profitable for the procurer only if performance and bidding costs are negatively correlated. Moreover, negative rebates (entry fees) always dominate positive rebates.

• Item Type: Paper (Discussion Paper)
• Keywords: Procurement, Auctions, Entry
• Collections: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A7 - Auktionen, Anreizprobleme und Wettbewerb
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D44, D45
• Language: English