Protection in government procurement auctions
Cole, M; Davies, R; Kaplan, TR
Date: 23 March 2017
Journal
Journal of International Economics
Publisher
Elsevier
Publisher DOI
Abstract
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 ...
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.
Economics
Faculty of Environment, Science and Economy
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