Auctions vs negotiations: a study of price differentials.

Recent contributions in auction and bargaining theory suggest that a procurer should place more faith in the power of competition among alternative suppliers than in his or her own negotiating skill. Based on data from 216 contracts between procurers and suppliers of medical and surgical articles, we test whether auctions and bargaining result in significantly different prices. The main results are that auctions give 'thicker' markets compared with negotiations, as expected, but that auctions do not result in significantly lower prices compared with negotiations.

[1]  H. Bester.  Bargaining versus price competition in markets with quality uncertainty , 1993 .

[2]  A. Rubinstein.  Perfect Equilibrium in a Bargaining Model , 1982 .

[3]  Jean Tirole,et al.  Auctioning Incentive Contracts , 1987, Journal of Political Economy.

[4]  M. Riordan,et al.  Awarding Monopoly Franchises , 1987 .

[5]  William Vickrey,et al.  Counterspeculation, Auctions, And Competitive Sealed Tenders , 1961 .

[6]  Guofu Tan,et al.  Entry and R & D in procurement contracting , 1992 .

[7]  S. Lippman,et al.  Posted Prices versus Bargaining in Markets with Asymmetric Information , 1998 .

[8]  R. Preston McAfee,et al.  Competition and Game Theory , 1996 .

[9]  Dan Levin,et al.  Equilibrium in Auctions with Entry , 1994 .

[10]  R. McAfee,et al.  Auctions and Bidding , 1986 .

[11]  Paul R. Milgrom,et al.  Auctions and Bidding: A Primer , 1989 .

[12]  Robert B. Wilson.  Game-Theoretic Analysis of Trading Processes. , 1985 .

[13]  Robert E. McCormick,et al.  Sealed Bids, Sunk Costs, and the Process of Competition , 1984 .

[14]  William Samuelson.  Competitive bidding with entry costs , 1985 .

[15]  R. McAfee,et al.  Auctions with entry , 1987 .

[16]  Steinar Vagstad,et al.  Procurement auctions with entry of bidders , 2000 .

[17]  Richard Engelbrecht-Wiggans,et al.  Optimal Auctions Revisited , 1993 .

[18]  A. Rubinstein,et al.  Bargaining and Markets , 1991 .

[19]  Robert B. Wilson,et al.  Bargaining with Private Information , 1993 .