Set-Asides in USDA Food Procurement Auctions

TL;DR

This paper analyzes how partial and full set-asides in USDA food procurement auctions influence bidding behavior and prices, revealing that partial set-asides tend to lower prices while full set-asides slightly increase prices for small businesses.

Contribution

It provides empirical evidence on the effects of set-asides on bid prices and profit margins in USDA food procurement auctions, using five years of bid data and regression analysis.

Findings

Partial set-asides decrease offer and winning prices for large and small bidders.

Full set-asides slightly increase prices for small businesses.

Net profit for small businesses is unlikely to rise with set-asides.

Abstract

We study the partial and full set-asides and their implication for changes in bidding behavior in first-price sealed-bid auctions in the context of United States Department of Agriculture (USDA) food procurement auctions. Using five years of bid data on different beef products, we implement weighted least squares regression models to show that partial set-aside predicts decreases in both offer prices and winning prices among large and small business bidders. Full set-aside predicts a small increase in offer prices and winning prices among small businesses. With these predictions, we infer that net profit of small businesses is unlikely to increase when set-asides are present.