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...

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Main Authors:	Borges de Oliveira, Alexandre, Fabregas, Abdoulaye, Fazekas, Mihaly
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2019
Subjects:	PROCUREMENT CONTRACT BIDDING
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

id	okr-10986-31583
recordtype	oai_dc
spelling	okr-10986-315832022-02-10T00:22:20Z Auction Length and Prices : Evidence from Random Auction Closing in Brazil Borges de Oliveira, Alexandre Fabregas, Abdoulaye Fazekas, Mihaly PROCUREMENT CONTRACT BIDDING 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. 2019-04-25T15:54:58Z 2019-04-25T15:54:58Z 2019-04 Working Paper http://documents.worldbank.org/curated/en/663441555954348673/Auction-Length-and-Prices-Evidence-from-Random-Auction-Closing-in-Brazil http://hdl.handle.net/10986/31583 English Policy Research Working Paper;No. 8828 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Brazil
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	PROCUREMENT CONTRACT BIDDING
spellingShingle	PROCUREMENT CONTRACT BIDDING Borges de Oliveira, Alexandre Fabregas, Abdoulaye Fazekas, Mihaly Auction Length and Prices : Evidence from Random Auction Closing in Brazil
geographic_facet	Latin America & Caribbean Brazil
relation	Policy Research Working Paper;No. 8828
description	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.
format	Working Paper
author	Borges de Oliveira, Alexandre Fabregas, Abdoulaye Fazekas, Mihaly
author_facet	Borges de Oliveira, Alexandre Fabregas, Abdoulaye Fazekas, Mihaly
author_sort	Borges de Oliveira, Alexandre
title	Auction Length and Prices : Evidence from Random Auction Closing in Brazil
title_short	Auction Length and Prices : Evidence from Random Auction Closing in Brazil
title_full	Auction Length and Prices : Evidence from Random Auction Closing in Brazil
title_fullStr	Auction Length and Prices : Evidence from Random Auction Closing in Brazil
title_full_unstemmed	Auction Length and Prices : Evidence from Random Auction Closing in Brazil
title_sort	auction length and prices : evidence from random auction closing in brazil
publisher	World Bank, Washington, DC
publishDate	2019
url	http://documents.worldbank.org/curated/en/663441555954348673/Auction-Length-and-Prices-Evidence-from-Random-Auction-Closing-in-Brazil http://hdl.handle.net/10986/31583
_version_	1764474659516973056

Auction Length and Prices : Evidence from Random Auction Closing in Brazil

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