FEEM working papers "Note di lavoro" series
2009 .023

Auctioning Monopoly Franchises: Award Criteria and Service Launch Requirements

Authors: Michele Moretto, Cesare Dosi
Series: Economy and Society
Editor: Fausto Panunzi
Type: Journal
Keywords: Concessions,Auctions,Award criteria,Service Rollout Time limits
JEL n.: L51,D44,D92
JEL: Forthcoming in Journal of Public Economic Theory


We study the competition to acquire the exclusive right to operate an infrastructure service, by comparing two different specifications for the financial proposals - "lowest price to consumers" vs "highest concession fee", and two alternative contractual arrangements: a contract which imposes the obligation to immediately undertake the investment required to operate the concessioned service and a contract which simply assigns to the winning bidder the right to supply the market at a date of her choosing. By comparing the returns of these alternative award criteria and concessioning conditions, we show that concessioning without imposing rollout time limits may or may not provide a higher expected social value, depending on the bidding rule used to allocate the contract. In turn, the relative advantages of each award criterion are affected by the concessioning conditions.

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