Foreign Bidders Going Once, Going Twice... Protection in Government Procurement Auctions

32 Pages Posted: 4 Apr 2014

See all articles by Matthew T. Cole

Matthew T. Cole

Florida International University (FIU)

Ronald B. Davies

University College Dublin (UCD)

Date Written: March 10, 2014

Abstract

Until recently, government procurement bidding processes have generally favored domestic firms by awarding the contract to a domestic firm even if a foreign firm tenders a lower bid, so long as the difference between the two is sufficiently small. This has been replaced by an agreement abolishing this practice. However, the presence of other trade barriers, such as tariffs, can continue to disadvantage foreign firms. We analyze the bidding strategies in such a game and show that when domestic profits are valued, tariffs will be used to discriminate against foreign firms. Furthermore, we find that optimal tariffs can be more protectionist than the optimal price preference, resulting in lower expected domestic welfare and total surplus.

Keywords: government procurement, tariffs, price preference

JEL Classification: F130, H570, F120

Suggested Citation

Cole, Matthew T. and Davies, Ronald B., Foreign Bidders Going Once, Going Twice... Protection in Government Procurement Auctions (March 10, 2014). CESifo Working Paper Series No. 4691, Available at SSRN: https://ssrn.com/abstract=2419923 or http://dx.doi.org/10.2139/ssrn.2419923

Matthew T. Cole (Contact Author)

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Ronald B. Davies

University College Dublin (UCD) ( email )

Belfield
Belfield, Dublin 4 4
Ireland

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