Procurement with Costly Bidding, Optimal Shortlisting, and Rebates
9 Pages Posted: 26 Oct 2006 Last revised: 31 Oct 2017
Date Written: September 1, 2006
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: Suggested Citation