Procurement Auction

What is procurement auction?

Let's say a local government of a country wishes to have a road constructed/resurfaced. In order to get the get the job done for the lowest possible cost they ask contractors to bid on the project. The lowest bid wins the contract and performs the task.

Why is it different from auctions for wines and arts?

The first difference (a non difference from an academic point of view) is that it is the reverse of such auctions. In an art auction the bidder with the highest bid wins, here a bidder with the lowest bid wins. The auctioneer in an art auction is the seller who receives the price, the auctioneer in the procurement auction is the buyer who pays the price. 

Do we need to study procurement auctions separately?

The main reason for studying procurement auctions separately is because the contexts in which they arise in reality present additional considerations that are not present in art or wine auctions. For instance, the contractor who wins may construct a road that is of very low quality. In a perfect world that is not an issue because you can punish the contractor severely. Unfortunately, we live in a very imperfect world, so we need to devise our procurement auctions so that such and other problems are minimized to the extent possible. That requires separate studies for procurement auctions.