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This chapter develops a structural framework for the analysis of scoring procurement auctions where bidder’s quality and bid are taken into account. With exogenous quality, the authors characterize the optimal mechanism whether the buyer is private or public and show that the optimal scoring rule need not be linear in the bid. The model primitives include the buyer benefit function, the bidders’ cost inefficiencies distribution and cost function, and potentially the cost of public funds. We show that the model primitives are nonparametrically identified under mild functional assumptions from the buyer’s choice, firms’ bids and qualities. The authors then develop a multistep kernel-based procedure to estimate the model primitives and provide their convergence rates. Our identification and estimation results are general as they apply to other scoring rules including quasi-linear ones.

The paper aims to understand the role of sensory quality scoring used at the competition auctions on pricing outcomes and how the auction process could be improved to increase sustainability in the specialty coffee market.

The authors build a conceptual model explaining the potential role of sensory quality scoring in generating inequitable outcomes in specialty coffee auctions. The authors' research is exploratory. The authors base the propositions on the findings of the extant literature and our analysis of data from 24 Best of Panama (BOP) Auctions that took place between 2017 and 2021.

A striking feature in recent BOP Auctions is a winner-takes-all (WTA) outcome. The authors also document the presence of significant price inversion. The authors attribute these outcomes to the interactions of information-poor producers, information-rich intermediaries and conspicuous consumers in competition auctions, where the product quality measurement is highly unreliable.

Data need to be gathered more broadly to enable the operationalization of the current propositions into testable hypotheses.

These strategies intend to provide guidelines for producers, consumers and other value chain participants on creating equitable solutions to a thriving industry where a WTA phenomenon occurs.

The current study is the first to argue that existing quality scoring practices, as well as conspicuous consumption, contribute to the inequities. Finally, the study proposes novel interventions to standardize the quality grading protocols and communicate them transparently to both producers and consumers.

The main aim of this paper is to review some of the newest and most promising advances in auction theory with an eye to applications to procurement practice. Here we focus in particular on four topics related to multidimensional auctions: 1) how to define a proper scoring rule when the awarding bodies lack the necessary information regarding its own preferences and suppliers’ technology; 2) how to cope with the information disclosure policy regarding the discretional evaluation of some aspects of each contractual proposal; 3) how to use contractors’ reputations based on their past performance in the awarding process; 4) how to control the risk of collusion and corruption in the awarding phase.

A gradual change on how to evaluate successful procurement, in both the private and the public sector has occurred in recent years. Indeed, in so far as economic efficiency is concerned from a price-only criterion for measuring success, decisions have shifted to a multi-criteria approach where various dimensions of quality, as well as price, are considered. The most common way to express such a shift is to say that procurement should deliver “best value for money” (BVM). That is, to award the contract, both monetary and non-monetary components of an offer are to be considered. Whether in competitive bidding or negotiations, BVM is typically formalized by a scoring formula, namely a rule for assigning dimensionless numbers to different elements of an offer, often expressed in different units of measurement. The contract would then be awarded according to the total score obtained by a bid. The main goal of this paper is to present a critical overview of some main themes related to the notion of BVM, discussing few typical forms of scoring rules as a way to formalize the procurer's preferences.

This paper presents a procurement auction format structured so as to reconcile supply-side costs with demand-side value through the alignment of bidder and bid-taker interests. The existence of a dominant bidding strategy ensures this alignment and, at the same time, discourages strategic bidding. The format also involves minimal revelation of bidder information, making it attractive to bidders who expect continued participation in the same market. Another major goal of this paper is to engage policymakers through a discussion of important issues, which were brought forth in the course of designing and analyzing the aforementioned auction, that relate generally to the successful execution of procurement auctions.

The purpose of this paper is to analyze how local and central authorities choose between lowest price and more complex scoring rules when they design supplier-selection mechanisms for public procurements. Five hypotheses are tested: a high level of cost uncertainty and highly non-verifiable quality makes the use of the lowest-price supplier-selection method less likely. Organizational habits and transaction-cost considerations influence the choice of mechanism. Strong quality concerns make complex rules more likely.

The analysis departures from normative theory (rational choice) and is based on the regression analysis and survey data comprising a gross sample of 40 contracting authorities and detailed information about 651 procurements.

More complex scoring rules are used more often when the authority is uncertain about costs and about delivered quality. Authority effects are also found to directly and indirectly influence the choice of supplier-selection method, suggesting that tendering design is partly driven by local habits and institutional inertia.

The authors argue that, from a normative point of view, lowest price is an adequate method when the degree of uncertainty is low, for example, because the procured products are standardized and since quality can be verified. When there is significant cost uncertainty, it is better to use the so-called economically most advantageous tender (EMAT) method. (Preferably this should be done by assigning monetary values to different quality levels.) If there is significant uncertainty concerning delivered quality, the contracting authority should retain a degree of discretion, so as to be able to reward good-quality performance in observable but non-verifiable quality dimensions; options to extend the contract and subjective assessments of quality are two possibilities. The main findings are that EMAT and more complex scoring rules are used more often when the contracting authorities report that they experience substantial uncertainty concerning delivered quality and actual costs and that these factors tend to decrease the weight given to price, in line with the predictions. However, the authors also find that this result is mainly driven by variations between authorities, rather than by between-products variation for the same authority. This is from a training of professionals and regulation perspective of policy relevance.

Contract allocation based on habits rather than rational ground could implicate the waste of resources (tax payers money) as it adventures the matching of the preferences of the public sector (the objective, subject matter, of the procurement) and what the potential supplier offers in its tender.

Although the principles for supplier selection are regulated by law they give the contracting authority substantial freedom in designing the scoring rule and in choosing what quality criteria to use. The tension between different objectives and the more general question whether the choices made by authorities reflect rational decision making or institutional inertia together motivate the current study. While the design of the supplier-selection mechanism is an important consideration in procurement practice, it has attracted relatively little attention from the academic community.

This paper examines the economic forces which may lead to government-assisted or -facilitated bid-rigging (kansei-dango) in public procurement in Japan, and considers their implications. A public official may often worry about situations where his/her procurement project will not be successfully implemented. Based on a simplified theoretical treatment and on case studies of kansei-dango, it is argued that the desire to avert the risk of unsuccessful procurement resulting from the "experience goods" status of procured goods and/or services may be one reason for bid-rigging. Based on this understanding of kansei-dango, we discuss some implications for policies to restrain this type of corruption.

We show how institutional and procedural characteristics affect the final price in public procurement. In order to obtain comparable unit prices, our analysis examined public procurement of homogeneous goods only. We examined two Czech commodity markets: electricity and natural gas, which enabled us to use a private market price as a benchmark metric. The regression analysis is based on the standard ordinary least squares method. On a dataset of 277 tenders, we found that the final unit price of the procurement is sensitive to movements in both commodity market price and price estimated ex ante by the procurer. Moreover, we identified that the final price is reduced when the procurer uses an open procedure, an electronic auction, or attracts more competitors.

Research was undertaken to assess the level of fraud and precautions against fraud in Internet auctions. A trial run was also carried out of placing items for auction with eBay and then bidding for them. It is concluded that Internet auctions are severely disadvantaged in comparison to traditional auctions because of their inability to check the quality or provenance of items on offer. The attempts of Internet auction houses to prevent potential fraud have loopholes and can therefore be manipulated of the unscrupulous.The current checks Internet auction houses impose are therefore not enough to eradicate this growing problem. Recommendations are made to a number of di ¡erent stakeholders,such as the government and the auction industry.