Abstract
The invited tender‐bid procurement auction used by oil companies to procure intermediate inputs into oil gathering has to find solutions to several problems. Assesses the nature of these problems and the peculiarities of the operating rules designed to solve them. Develops an economic rationale for the rules, and discusses various advantages and disadvantages of the price‐discovery arrangement. Utilizes the transaction‐cost paradigm, some standard results from auction theory, and the concept of fuzzy information.