Department of Applied Economics' academic seminar - Elena Podkolzina, "How to choose 'best' seller in public procurement: evidence from Russian gasoline market"

Resume:
"Public procurement markets account for about 12 percent of GDP in developed countries (OECD, 2019). In awarding contracts to suppliers, public buyers often rely on first-price auctions where suppliers bid a rebate on the reserve price, and the contract is assigned to the supplier with the highest rebate (i.e. the lowest-price supplier). In this setting, the reserve price - representing the buyer's maximum willingness to pay for the good or service awarded - is a key parameter in the auction's design. Indeed, its level affects directly the competition in the auction and, in turn, the price paid by the buyer.

In a repeated procurement context, we theoretically and empirically investigate the public buyer's setting of the reserve price in a first-price auction. Our simple theoretical model shows how buyers' information on the actual supplier's production costs affects average reserve price and competition in the forthcoming procurement auctions. Our theoretical predictions are then tested on a rich dataset of Russian public procurement for gasoline. We find that, when the public buyer implements a reserve price discount strategy, the winning bid and competition are lower than in auctions where such strategy is not adopted. Static vs dynamic efficiency effects of this strategy on social welfare are discussed."

Registration is not required. The event is public open.