Competition for procurement shares

We propose a new procurement procedure that allocates shares of the total amount to be procured depending on the bids of suppliers. Among the properties of the mechanism are the following: (i) Bidders have an incentive to participate in the procurement procedure, as equilibrium payoffs are strictly positive. (ii) The mechanism allows variations in the extent to which affirmative action objectives, like promoting local industries, are pursued. (iii) Surprisingly, even while accomplishing affirmative action goals, procurement expenditures might be lower than under a standard auction format.

Dahm acknowledges the support of the Barcelona Graduate School of Economics and the Government of Catalonia as well as of the Government of Spain under projects SEJ2007-67580-C02-01 and ECO2010-19733.