PROMOTING FAIR COMPETITION IN PUBLIC PROCUREMENT

If a government cares for local firms' profit, but not for foreign firms', foreign firms will be discriminated against when competing for government procurement contracts. Foreign firms will be chosen less often and, when chosen, earn less profit than local firms. We analyze a more central authority's policies against such discrimination given a situation in which a government has private information on product quality, and the competing firms have private information on own costs. Necessary and sufficient conditions for free revelation of quality information are derived. Finally, optimal policy when these conditions are not satisfied is characterized and discussed.