Protection in government procurement auctions
Journal of International Economics
Reason for embargo
Discrimination against foreign bidders in procurement auctions has typically been achieved by price preferences, that is, a policy of accepting a range of higher prices from a domestic firm over a lower price from a foreign firm. We demonstrate that in the bidding game, each level of protection via a price preference can be achieved by an equivalent tariff. When government welfare depends only on net expenditures, this equivalence carries over to the government’s decision. As such, agreements to eliminate price preferences may be unsuccessful unless accompanied by tariff limitations. On the other hand, if tariff collection is costly, then even without tariff limits banning price preferences lowers protection and increases global welfare.
The authors acknowledge that this paper is produced as part of the project “Globalization, Investment and Services Trade (GIST) Marie Curie Initial Training Network (ITN)” funded by the European Commission under its Seventh Framework Programme - Contract No. FP7-PEOPLE-ITN-2008-211429.
This is the author accepted manuscript. The final version is available from Elsevier via the DOI in this record.
Available online 23 March 2017