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Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?

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Author Info

  • Antonio Estache

    ()

  • Atsushi Iimi

    ()

Abstract

Asymmetric auctions are among the most rapidly growing areas in the auction literature. The potential benefits from improved auction efficiency are expected to be enormous in public procurement auctions related to official development projects. Entrant bidders are considered a key to enhance competition in an auction and break potential collusive arrangements among incumbent bidders. Asymmetric auction theory predicts that weak (fringe) bidders would bid more aggressively when they are faced with a strong (incumbent) opponent. With ODA procurement data, it has been found that in the major infrastructure sectors, entrants submitted systematically aggressive bids in the presence of an incumbent bidder. It is also shown that high concentration of incumbents in an auction would harm auction efficiency, raising procurement costs. The results suggest that auctioneers should encourage fringe bidders to actively participate in the bidding process while maintaining the quality of the projects. It is conducive to enhancing competitive circumstances in public procurements and improving allocative efficiency.

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File URL: http://hdl.handle.net/10.1007/s11151-010-9242-z
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Bibliographic Info

Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 36 (2010)
Issue (Month): 2 (March)
Pages: 163-187

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Handle: RePEc:kap:revind:v:36:y:2010:i:2:p:163-187

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Web page: http://www.springerlink.com/link.asp?id=100336

Related research

Keywords: Public procurement; Auction theory; Infrastructure development; Bidder asymmetry; Fringe bidders; Bidder participation; D44; H54; H57; D82;

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References

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  1. Atsushi Iimi, 2006. "Auction Reforms for Effective Official Development Assistance," Review of Industrial Organization, Springer, vol. 28(2), pages 109-128, 03.
  2. Tong Li & Isabelle Perrigne, 2003. "Timber Sale Auctions with Random Reserve Prices," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 189-200, February.
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  4. Benitez, Daniel & Estache, Antonio, 2005. "How concentrated are global infrastructure markets?," Policy Research Working Paper Series 3513, The World Bank.
  5. Tong Li & Xiaoyong Zheng, 2006. "Entry and competition effects in first-price auctions: theory and evidence from procurement auctions," CeMMAP working papers CWP13/06, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  6. Benjamin Olken, 2005. "Monitoring corruption: Evidence from a field experiment in indonesia," Natural Field Experiments 00317, The Field Experiments Website.
  7. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
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  9. Patrick Bajari & Robert McMillan & Steven Tadelis, . "Auctions versus Negotiations in Procurement: An Empirical Analysis," Working Papers 02007, Stanford University, Department of Economics.
  10. Dakshina G. De Silva & Timothy Dunne & Georgia Kosmopoulou, 2003. "An Empirical Analysis of Entrant and Incumbent Bidding in Road Construction Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 295-316, 09.
  11. Zheng, Charles Z., 2001. "High Bids and Broke Winners," Journal of Economic Theory, Elsevier, vol. 100(1), pages 129-171, September.
  12. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  13. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  14. Antonio Estache & A. Iimi, 2009. "Joint Bidding, Governance and Public Procurement Costs: A case of road projects," ULB Institutional Repository 2013/43906, ULB -- Universite Libre de Bruxelles.
  15. Srabana Gupta, 2002. "Competition and collusion in a government procurement auction market," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(1), pages 13-25, March.
  16. Omar Arias & Walter Sosa-Escudero & Kevin F. Hallock, 2001. "Individual heterogeneity in the returns to schooling: instrumental variables quantile regression using twins data," Empirical Economics, Springer, vol. 26(1), pages 7-40.
  17. De Silva, Dakshina G. & Dunne, Timothy & Kosmopoulou, Georgia, 2002. "Sequential bidding in auctions of construction contracts," Economics Letters, Elsevier, vol. 76(2), pages 239-244, July.
  18. Estache, Antonio & Iimi, Atsushi, 2008. "Procurement efficiency for infrastructure development and financial needs reassessed," Policy Research Working Paper Series 4662, The World Bank.
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Citations

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Cited by:
  1. Sheng Li & Peter Philips, 2012. "Construction Procurement Auctions: Do Entrant Bidders Employ More Aggressive Strategies than Incumbent Bidders?," Review of Industrial Organization, Springer, vol. 40(3), pages 191-205, May.
  2. Atsushi Iimi, 2013. "Testing Low-Balling Strategy in Rural Road Procurement," Review of Industrial Organization, Springer, vol. 43(3), pages 243-261, November.
  3. Estache, Antonio & Iimi, Atsushi, 2009. "Auctions with endogenous participation and quality thresholds : evidence from ODA infrastructure procurement," Policy Research Working Paper Series 4853, The World Bank.

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