Awarded the Nobel Prize in Economics in 2020, the American Paul Milgrom is a reference in the study of the general theory of auctions, which shows how these processes can promote competitive markets. His work formatted the first cellular frequency bid in the US, in 1994. Milgrom showed the importance of establishing a price for each band, which was not common. The initiative attracted more companies, and the model was replicated around the world.
According to the economist, it is very difficult to attract international investors to participate in tenders, as the Brazilian government has been seeking. “If they make a long-term commitment, they want to know the level of stability in the government, the laws and how taxes will be collected in the future”, says Milgrom, who will speak at the P3C Conference, an event for the infrastructure sector, focused on PPPs and concessions, to be held on Tuesday and Wednesday.
What makes an auction a success?
The auction is successful when it is well suited for every occasion. The simplest auctions are those where there is only one item up for grabs. In these cases, it is possible to organize a process in which proposals are delivered in advance, or opt for the traditional bottom-up model (in which companies make offers on the spot). But in the case of government auctions, things can get complicated.
In what sense?
A government procurement auction attracts different suppliers of different sizes. Or a seller for each different product. Or the government may have multiple items for sale, as in telecommunications auctions. The bidding can be divided into different frequencies, covering different regions (of the country). In each case, it is necessary to adapt the auction rules to the problem to be solved. Otherwise, the auction may fail.
Last year, there were large auctions in Brazil. Some had little competition or even attracted interested parties. Why does it happen?
There are two reasons. One of them is the difficulty of attracting qualified companies. I don’t know if this is the case in Brazil. I have little familiarity with these auctions. The second reason is for a strategy of the companies, which may want the auction to fail. For example, the government asks a very high price for a radio frequency to make sure it raises some money. Buyers can appreciate that the government will have to sell the spectrum anyway. If the first attempt fails, the government will have to sell it cheaper. This can be a strategy.
Could it be an auction format issue?
Yes. The format can make it very difficult for companies to bid, which discourages smaller competitors. There are countless ways to make an auction fail.
Brazil has been seeking to attract companies from other countries to the auctions. How to guarantee the participation of foreigners?
International investors are interested in the complete package. If they make a long-term commitment, they want to know how stable the government is, the laws and how taxes will be collected. And it is necessary to investigate the conditions involved. To put it abstractly: if the government wants to privatize a port, the potential buyer needs to know what the employment contracts are and the conditions of the facilities. It will project demand and traffic. And you’ll want to know about the regulations.
Is it an investment that few are willing to make?
Yes. It takes a great effort to participate in such an auction. Companies will not do this if they do not have the expectation that they will be treated well. It’s not just a question of the auction. It’s a complete package. And, even when there is all that, it is necessary to make companies aware of the auction, which requires going to the market and showing what is being planned.
The information is from the newspaper The State of São Paulo.
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