DP9790 On discrimination in procurement auctions

Author(s): Philippe Jehiel, Laurent Lamy
Publication Date: January 2014
Keyword(s): asymmetric buyers, auctions with endogenous entry, bid preference programs, cartels, favoritism, government procurement, incumbents, optimal auction design, Poisson games
JEL(s): D44, H57, L10
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9790

With exogenous participation, strong bidders should be discriminated against weak bidders to maximize revenues (Myerson 1981). When participation is endogenous and the set of potential entrants is large, optimal discrimination if any takes a very different form. Without incumbents, there should be no discrimination even if entrants come from groups with different characteristics. With incumbents, those should be discriminated against entrants no matter how strong/weak they are even if some share of their surplus is internalized by the designer. The optimal reserve policy in standard auctions is also analyzed to shed light on situations in which discrimination is not permitted.