Beschreibung:
This paper provides a theoretical analysis of in-house bidding in public procurement tenders. We study the bidding strategies in both a Vickrey auction and a first-price auction, where the buyer participates by submitting an in-house bid. We allow for the buyer to observe all submitted bids before submitting its own bid. Abstracting from any illicit behavior, we show that the bidding strategies of the Vickrey auction resemble those of the first-price auction. Following the unfavorable outcome of the Vickrey auction, we change the buyer’s objective function from minimizing cost for society to minimizing its own cost and show that the latter delivers a lower payment for the buyer than the former