Article

Auctions Versus Negotiations: Evidence from Public Procurement in the Italian Healthcare Sector

Authors:
To read the full-text of this research, you can request a copy directly from the author.

Abstract

This paper contributes to the empirical literature on auctions and negotiations. Using healthcare facilities data on procurement contracts, I find evidence that auctions do not yield lower prices than negotiations. This result is robust to specifications tackling quality differences, endogenous participation, and the bilateral and multilateral nature of negotiated procedures. I also find evidence that late payments reduce competition and thus affect firms’ participation choices. A simple test based on Benford’s Law is used to rule out collusion among participants as a possible explanation of the results.

No full-text available

Request Full-text Paper PDF

To read the full-text of this research,
you can request a copy directly from the author.

... Two studies by Nigrini (1996Nigrini ( , 1999 highlight possibilities of using the same Law in accounting, auditing, and forensic areas. More recently, studies conducted by Vellez (2011, Cunha and Bugarin (2014), Kira and Teixeira (2016), Bugarin and Cunha (2017) and Tóth and Hajdu (2017) consolidate the use of the NB-Law in studies on the approach of the economics of corruption. ...
Article
Full-text available
This article uses the Newcomb-Benford(NB-Law), or Law of Anomalous Numbers, to analyze the values of Electronic Bidding Processes that occurred in the Purchasing Portal of the Brazilian Federal Government and contained in the newly created website “DadosAbertos.gov.br”. In the analysis, all services contracted in the period from 2014 to 2018 were considered. The objective of the research was to analyze the conformity of the Electronic Auction referred to the NB-Law, aiming to verify anomalies, which represent signs of fraud. It can be said that there was a statistically significant anomaly in the analysis of the first digit of the values bid in the Electronic Bidding Tenders. It is also noted that the trading sessions with the first digit of numbers 4, 8 and 9 are those with the largest differences between expected and observed values, strengthening the hypothesis that these represent the trading sessions with the highest incidence / probability of deviations, to be tested in future studies. The study, pioneer in this type of analysis in the Brazilian data source, aims to contribute to the literature focused on the detection of accounting or financial fraud in the public sector. The results collected here can also contribute to the practice of inspection in public management. It is recommended to deepen the studies based on the Economics of Corruption, on issues that involve the detection of fraud, so that corruption becomes unviable or inopportune.
... As regards Italy, previous studies show mixed evidence on the relationship between auction rules and procurement resulys: Rizzo (2006) reveals that open auctions are more efficient than negotiations, whereas in Bonaccorsi et al. (2000) negotiations should be preferred when medical devices are highly complex and their quality is not easy to measure ex ante (in line with Bajari et al. (2001)). Contrarily, the work of Vellez (2011) shows that negotiations do not lead to higher prices and, instead, multilateral negotiations allow to award contracts with even lower prices. Among the most recent studies, Borsoi et al. (2017) compare the tender dossier description issued by different Italian procurers of medical devices. ...
... In the case of a non-monopolistic procurement market, you might suspect large quantities to be associated with a higher degree of competition in the procurement procedure. Although this seems intuitive, the theoretical literature on this topic is more ambiguous, as pointed out in Vellez (2011) and Dimitri et al. (2006). Due to the fact that in exogenous participation models, a higher purchased quantity leads to more intense competition and lower prices, firms might abstain from participating in a tender procedure if participation is endogenous and involves administrative costs. ...
Article
Full-text available
In this paper we ascertain that the Italian market for medical devices is characterized by significant price dispersion. We have, therefore, carried out an econometric analysis, as well as a Bayesian network analysis to verify if price dispersion is due to price discrimination. We have found that ASLs (Aziende Sanitarie Locali) incur higher procurement costs than AOs (Aziende Ospedaliere), which purchase larger quantities as Centralized purchasing agencies do. Consequently, second-degree price discrimination may be one of the causes of price differences. Price levels are also inversely related to product age because of intense innovative activity, making product differentiation more likely than price discrimination. Public procurement agents located in Southern Italy pay higher prices than those located in Northern or Central Italy. This is due to the higher probability for Southern procurement agents to purchase from independent wholesalers, rather than from producers, implying a double marginalization effect which raises final prices. It is also more likely that obsolete medical devices are sold to Southern health care providers.
... He shows that auctions do not yield significantly lower prices than negotiations. A similar conclusion was reached by Vellez (2011) based on data from the Italian healthcare sector. Lalive and Schmutzler (2011) use data from the public procurement of the regional passenger railway service in Germany, and they claim that auctions result in significantly lower prices than negotiations. ...
Article
Full-text available
This paper explores the effect of various contract-awarding procedures in public procurement on the price of the contract. We provide a theoretical model that compares prices in different procedures and tests whether there is a significant price difference between the procedures using data from Czech public procurement. The model predicts that auctions are more efficient than negotiations given the same number of suppliers, and open procedures are more efficient than closed procedures if high-cost firms are selected for the closed procedure. In accordance with the first prediction, we find that open auctions are more efficient than open negotiations. Concerning the second prediction, we find that closed procedures are less efficient than open procedures, which suggests that procurers tend to select relatively more costly firms to participate in closed procedures. Comparing all four awarding procedures, we find that open auctions are the most efficient procedure used in the Czech Republic. We estimate that the inefficiencies due to the use of other contract-awarding procedures are substantial.
... Guasch et al. (2008) or Estache et al. (2009) for instance show that concession contracts awarded via competitive tendering are more likely to be renegotiated than contracts attributed through negotiation, and they estimate the resulting additional costs to amount to 10% of the initial contracted costs. Vellez (2011) also shows that the use of auctions does not necessarily lead to lower prices in public procurement of medical technology in Italy when compared to negotiations. An exception to this result is Lalive and Schmutzler (2011), which shows that procurement prices are lower when auctions are used instead of negotiations to procurement railway passenger services in Germany. ...
Article
Full-text available
March, 2012. Work in progress. Comments are welcome. Abstract Should public authorities use competitive bidding or negotiation to select a contractor for public procurement contracts? Competitive bidding has traditionally been seen as the most effective procedure to achieve value for money and to avoid favoritism and corruption in public procurement while ensuring a transparent and competitive process (Bulow and Klemperer, 1996). Yet, recent developments in the economic literature tend to mitigate this common wisdom and suggest that the advantages of competitive bidding are not as clear cut (Bajari et al., 2009; Guasch et al., 2008; Estache et al., 2009, etc.), and suggest that it can be more efficient to select providers of complex goods or services through negotiated procedures. In this paper, we investigate the motivations of public authorities to award public works procurement contracts using either auction or negotiation. In addition to the economic efficiency argument, we consider Spiller's proposition concerning the impact of "third party opportunism" on public contracting (Spiller, 2009, 2011). In particular, public authorities may be biased towards the use of auctions in public procurement since they are politically elected and therefore subject to public scrutiny. Our empirical study relies on an exhaustive database of 2,671 public work procurement contracts in 2007. Our empiri-cal results show that electoral pressure does play a role in the municipalities' decision to award public procurement contracts through auctions or negotiations. More specifically, a more concentrated political market and a higher score obtained by the political competitor increases the probability that a municipality relies on auction to award a public work pro-curement contract. This observation is consistent with the idea that public authorities may prefer to appeal to auction to avoid suspicion of favoritism and corruption. Our empirical study therefore provides some support to Spiller (2009, 2011).
... Following Oliver Williamson's [1976] canonical paper on franchise bidding pointing out contractual failures at different stages (i.e., selection, execution, and renewal stage), many recent papers investigated public-private contracting issues, including the question of competition versus negotiation in the selection stage (Bajari et al. [2011(Bajari et al. [ , 2009; Lalive and Schmutzler [2011]; Vellez [2011]; Chever and Moore [2012]; Amaral et al. [2013]), collusion and corruption (Compte et al. [2005]; Martimort and Straub [2006]), contract enforcement and renegotiations at the execution stage (Engel et al. [2009]; Gagnepain et al. [2013]; Guasch et al. [2007Guasch et al. [ , 2008; Chong et al. [2014]), as well as contract renewals (Beuve et al. [2014]). These studies built on several theoretical frameworks that emphasize problems with asymmetric information, incomplete contracting, and transaction costs. ...
Conference Paper
We compare procurement contracts where the procurer is either a public agent or a private corporation. Using algorithmic data reading and textual analysis on a rich dataset of contracts for a standardized product and service from a single provider, we find that public contracts feature more rigidity clauses than private-to-private contracts and their renegotiation is formalized more frequently in amendments. We further compare in-sample public contracts and find similar patterns rising in political contestability using several measures. We argue that a significant part of the contractual rigidity difference between purely private and public contracts is a political risk adaptation of the public agent to curtail plausible challenges from political contesters and interest groups.
Article
Baldi S. and Vannoni D. The impact of centralization on pharmaceutical procurement prices: the role of institutional quality and corruption, Regional Studies. This paper deals with the open issue regarding centralized versus decentralized public procurement strategy. Using a unique dataset on tender prices of selected drugs for hospital usage provided by a sample of 52 Italian local health service providers (aziende sanitarie locali – ASLs) between 2009 and 2012, the paper tests which procurement system (centralized, decentralized or hybrid) performs better. Controlling for several covariates, including measures of institutional quality and corruption, it finds that centralized and hybrid procurers pay lower prices than decentralized units. Moreover, the results show that in areas in which institutional quality is lower or corruption is higher, the effect of centralization in terms of negotiating lower prices is much stronger, with savings of up to 60% of the price paid by ASLs that procure independently.
Article
The assessments of business trade often involve both economic and relational concerns. They may become more challenging when our understanding of the impacts of trading mechanisms is still limited. The current experimental study compares two generic trading mechanisms, namely, multi-bilateral multi-issue negotiations and multi-criteria auctions. By examining both economic measures and subjective appraisals in controlled exchange episodes, the study shows some subtle relations between mechanism use, substantive outcomes, and subjective appraisals. While use of negotiations vs. auctions did not reveal significant differences on economic measures, traders are strongly influenced by the gain-or-loss contingency. When they win a contract, their subjective appraisals are heavily influenced by their achieved substantive outcomes. When they do not win a contract, they feel auctions are better than negotiations. The results confirm that the assessments of business trade that rely solely on substantive measures are not sufficient.
Article
We analyze bidder collusion in public procurement. Our focus is on less than all-inclusive cartels. We use public information on convicted bid-rigging schemes taken from the decisions of the French Competition Authority to tackle the question of external cartel stability. Our goal is to investigate the impact of the number of outside bidders on cartels. We first show that despite the strict anonymity rules of French public procurement, cartels anticipate the number of outside firms and submit their low bids accordingly. This result confirms some common theoretical assumptions. We also show that this adaptation lowers the losses of cartels due to these outside firms. We then discuss the implications of these results for public policy.
ResearchGate has not been able to resolve any references for this publication.