Procurement with Costly Bidding, Optimal Shortlisting, and Rebates

9 Pages Posted: 26 Oct 2006 Last revised: 31 Oct 2017

See all articles by Cuihong Fan

Cuihong Fan

Shanghai University of Finance and Economics

Elmar Wolfstetter

Humboldt University of Berlin - Faculty of Economics; Korea University - College of Economics and Commerce; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 1, 2006

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.

Keywords: Procurement, Auctions, Entry

JEL Classification: D44, D45

Suggested Citation

Fan, Cuihong and Wolfstetter, Elmar G., Procurement with Costly Bidding, Optimal Shortlisting, and Rebates (September 1, 2006). Economics Letters, 98 (2008) 327–334. Available at SSRN: https://ssrn.com/abstract=940479 or http://dx.doi.org/10.2139/ssrn.940479

Cuihong Fan

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Elmar G. Wolfstetter (Contact Author)

Humboldt University of Berlin - Faculty of Economics ( email )

Institut für Wirtschaftstheorie I
Spandauer Strasse 1
Berlin
Germany
+49 30 2093 5652/3 (Phone)
+49 30 2093 5619 (Fax)

HOME PAGE: http://www2.hu-berlin.de/wt1wo/staff/wolfstetter/index.html

Korea University - College of Economics and Commerce ( email )

Anam-dong, Sungbuk-Ku
Seoul, 136-701
Korea

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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