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On the Benefits of Set-Asides

Jehiel, P; Lamy, L; (2020) On the Benefits of Set-Asides. Journal of the European Economic Association , 18 (4) pp. 1655-1696. 10.1093/jeea/jvz021. Green open access

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Abstract

Set-aside programs that consist in forbidding access to specific participants are commonly used in procurement auctions. We show that when the set of potential participants is composed of an incumbent (whose entry costs are already sunk) and of entrants who show up endogenously (in such a way that their expected rents are fixed by outside options), then it is always beneficial for revenues to exclude the incumbent in the Vickrey auction. This exclusion principle is generalized to dominant-strategy auctions that favor the incumbent in the sense that the incumbent would always get the good when valuing it most. By contrast, set-asides are not desirable if the incumbent’s payoff is included in the seller’s objective in the Vickrey auction, and more generally it is detrimental to exclude a bidder that is not favored.

Type: Article
Title: On the Benefits of Set-Asides
Open access status: An open access version is available from UCL Discovery
DOI: 10.1093/jeea/jvz021
Publisher version: https://doi.org/10.1093/jeea/jvz021
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10104609
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