Auction Length and Prices : Evidence from Random Auction Closing in Brazil
Electronic reverse auctions are the most used competitive method for procurement of goods and non-consulting services by the Federal Government of Brazil. These auctions are closed randomly, which perfectly satisfies fairness considerations but may...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/663441555954348673/Auction-Length-and-Prices-Evidence-from-Random-Auction-Closing-in-Brazil http://hdl.handle.net/10986/31583 |
| Summary: | Electronic reverse auctions are the most
used competitive method for procurement of goods and
non-consulting services by the Federal Government of Brazil.
These auctions are closed randomly, which perfectly
satisfies fairness considerations but may be suboptimal from
an efficiency perspective. There are concerns that tenders
are closed too early and randomness favors bidders with
algorithmic bidding software, leading to high prices. Hence,
this paper investigates what would happen if the random
closing rule was replaced by another rule. The paper uses
the complete data set of completed electronic actions in
2015–17 comprising 112 million bids for 0.9 million items
purchased. Exploiting the random closing rule, simple OLS
models are run with a wide set of fixed effects as well as
covariates capturing competition. The findings point at
alternative strategies to optimize auction design: simple
actions such as increasing the average and minimum length of
the random phase can result in 2.8 and 0.6 percent price
savings, respectively, or R$540 million and R$116 million
per year; or more complex designs such as setting the length
to the maximum for the random phase if there are 15 bidders
or more can yield 2.6 percent or R$ 500 million a year in
price savings, or doing the same if a large discount is
placed within three minutes to closing can yield 1.1 percent
lower prices or R$ 210 million a year in savings. |
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