Seminarios Académicos

event Publicación: 01/07/2023

Centralizing Procurement: The Roles of Scale, Selection and Variety

Autor: Juan Pablo Atal

Co autores: Claudia Allende Rodrigo Carril, José Ignacio Cuesta, Andrés González Lira

Abstract: Centralized procurement intends to increase eciency by reducing upstream market power through “scale effects” but may decrease variety and thus fail to accommodate buyers with heterogeneous preferences. Moreover, buyers’ voluntary participation may result in adverse selection into intermediation when costs are heterogeneous, limiting its gains. We study these mechanisms in the context of public procurement for pharmaceuticals in Chile. Through a combination of reduced-form analyses and a structural model, we find large scale effects, substantial preference heterogeneity, and cost heterogeneity. We use our model to evaluate the desirability of introducing minimum centralized procurement mandates as recently introduced in the country.