From Price Competition to Mechanism Design: An Economic Analysis of Tendering Based on Auction Theory

Abstract

The tendering and bidding system constitutes a core mechanism for public procurement and resource allocation, with its economic essence amenable to the analytical framework of auction theory. This paper systematically reviews the application logic of auction theory in tendering analysis, revealing the mechanisms through which different bidding formats influence bidder behavior, allocative efficiency, and procurement costs. The research indicates that the economic performance of bidding mechanisms depends not only on the intensity of competition but also on the institutional design of information structure, scoring rules, and budget constraints. Although first-price sealed bidding is theoretically equivalent to English auctions in terms of expected revenue, structural differences exist in anti-collusion capabilities. Two-stage bidding may inadvertently facilitate collusion by reducing coordination costs. Multi-attribute scoring auctions and budget-constrained auctions introduce new strategic dimensions that can suppress low-quality competition. The findings suggest that tendering reform should transcend traditional thinking centered on “highest price wins” or “lowest price wins”, moving toward mechanism design concepts grounded in incentive compatibility.