The Law of Small Numbers: Investigating the Benefits of Restricted Auctions for Public Procurement
Abstract: A commonly accepted view in the academic literature is that mitigating competition may solely be beneficial when tendering complex contracts. Yet, according to an OECD-report, restricted auctions are frequently used among EU-member states to procure small contracts. In this paper, we suggest to further investigate this paradox. First, regarding some public buyers’ particularities, we argue that the systematic use of open auctions may lead them to spend most of their resources on a small part of their overall activity. Second, using an original dataset of 180 contracts, attributed between 2006 and 2009 by a local public buyer of social housing, we show that discretion during the invitation of bidders may enable to limit the comparison of offers to the most efficient bidders. To do so, we investigate the rationale behind the determinants of bidders’ invitation; then, using a two-step Heckman model, we show that this invitation phase enables the buyer to receive more competitive bids - without loss of quality. As far as we know, we are the first to shed light on the advantages of using restricted auctions to tender small contracts.
