Discrimination in Dynamic Procurement Design with Learning-by-Doing

42 Pages Posted: 3 Oct 2012

See all articles by Klenio Barbosa

Klenio Barbosa

Sao Paulo School of Economics - FGV

Pierre Boyer

Ecole Polytechnique, Palaiseau - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 28, 2012

Abstract

Discriminatory programs that favor local and small firms in government procurement are common in many countries. This paper studies the long-run impact of procurement discrimination on market structure and future competition in industries where learning-by-doing makes incumbent firms more efficient over time. We consider a sequential procurement design problem in which local and global firms compete for public good provision. Both firms benefit from learning-by-doing if they provide the public good in the previous period but global firms only may be able to transfer learning-by-doing from different markets. We find that the optimal procurement has to be biased in favor of the local firm even when all firms are symmetric with respect to their initial cost distribution. This bias fosters future competition and reduces intertemporal expected transfers to providers.

Keywords: discrimination, dynamic procurement, local versus global firms, learning-by-doing

JEL Classification: D440, H570, H700, H870

Suggested Citation

Barbosa, Klenio and Boyer, Pierre C., Discrimination in Dynamic Procurement Design with Learning-by-Doing (September 28, 2012). CESifo Working Paper Series No. 3947. Available at SSRN: https://ssrn.com/abstract=2155610

Klenio Barbosa

Sao Paulo School of Economics - FGV ( email )

Rua Itapeva, 474
Sao Paulo
Brazil

Pierre C. Boyer (Contact Author)

Ecole Polytechnique, Palaiseau - Department of Economics ( email )

Route de Saclay
Palaiseau, 91120
France

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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