Dosi C., Moretto M. (2009).

Auctioning Monopoly Franchises: Award Criteria and Service Launch Requirements. FEEM Working Paper No. 23.2009.

Abstract:

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.