Auctions Versus Negotiations in Procurement: An Empirical Analysis

33 Pages Posted: 8 Jun 2003 Last revised: 31 Aug 2022

See all articles by Patrick Bajari

Patrick Bajari

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Robert Stanton McMillan

Cauchy Capital

Steven Tadelis

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: June 2003

Abstract

Should the buyer of a customized good use competitive bidding or negotiation to select a contractor? To shed light on this question, we offer a framework that compares auctions with negotiations. We then examine a comprehensive data set of private sector building contracts awarded in Northern California during the years 1995-2000. The analysis suggests a number of potential limitations to the use of auctions. Auctions perform poorly when projects are complex, contractual design is incomplete and there are few available bidders. Furthermore, auctions stifle communication between buyers and the sellers, preventing the buyer from utilizing the contractor's expertise when designing the project. Some implications of these results for procurement in the public sector are discussed.

Suggested Citation

Bajari, Patrick and McMillan, Robert Stanton and Tadelis, Steven, Auctions Versus Negotiations in Procurement: An Empirical Analysis (June 2003). NBER Working Paper No. w9757, Available at SSRN: https://ssrn.com/abstract=414255

Patrick Bajari (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-763-5319 (Phone)

HOME PAGE: http://www-personal.umich.edu/~bajari/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert Stanton McMillan

Cauchy Capital

Steven Tadelis

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
66
Abstract Views
2,321
Rank
77,530
PlumX Metrics