Auctions vs. negotiations: The case of favoritism

摘要: We compare two commonly used mechanisms in procurement: auctions and negotiations. The execution of the procurement mechanism is delegated to an agent buyer. has private information about buyer’s preferences may collude with one sellers. provide a precise definition both show – contrary conventional wisdom that intransparent negotiation yields higher buyer surplus than transparent auction for range parameters. In particular, small expected punishments there exists lower upper bound on number sellers such probability arbitrary close 1 parameter space. Moreover, if punishment small, always more efficient generates