Citation

Discussion Paper Details

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Full Details

Title: On the benefits of set-asides

Author(s): Philippe Jehiel and Laurent Lamy

Publication Date: October 2016

Keyword(s): asymmetric buyers, auctions with endogenous entry, entry deterrence, government procurement, incumbents and set-asides

Programme Area(s): Industrial Organization

Abstract: Set-asides programs which consist in forbidding access to specific participants are commonly used in procurement auctions. We show that when the set of potential participants is composed of an incumbent (who bids for sure if allowed to) and of entrants who show up endogenously (in such a way that their expected rents are fixed by outside options), then it is always beneficial to exclude the incumbent in the second-price auction. This exclusion principle carries over to other auction formats that favor the incumbent and also to some environments with multiple incumbents. Whether it could be beneficial to exclude some kinds of entrants is also addressed. Various applications are discussed.

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Bibliographic Reference

Jehiel, P and Lamy, L. 2016. 'On the benefits of set-asides'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11564