Favouritism in Scoring Rule Auctions
Abstract: Scoring rule auctions (SRAs) can be a powerful mechanism to procure complex works or services, when quality matters. However, given the buyer's discretion in the design of SRAs, favouritism - with its potential positive (i.e. repeated cost-saving interactions) or negative (i.e. corruption) effects on social welfare - can arise. In this paper we empirically document potential favouritism in an original dataset of 196 SRAs for the procurement of canteen services in Italy over the period 2009-2013. We then sketch a simple model highlighting how an SRA with multidimensional quality can be distorted to favour the incumbent bidder winning the competition. Finally, we design and run a new empirical test to verify our theoretical result. We find that SRAs can be distorted to favour the incumbent bidder, and that the victory of the incumbent is associated with less competition and higher prices; and no effect by quality weight in the scoring function on the winning rebate.
