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

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  • Antonio Estache
  • A. 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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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number 2008_020.

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Length: 23 p.
Date of creation: Mar 2008
Date of revision:
Publication status: Published by: ECARES, Université Libre de Bruxelles, Bruxelles
Handle: RePEc:eca:wpaper:2008_020

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Keywords: Public procurement; auction theory; infrastructure development; bidder asymmetry; fringe bidders; market entry;

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References

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Cited by:
  1. Atsushi Iimi, 2013. "Testing Low-Balling Strategy in Rural Road Procurement," Review of Industrial Organization, Springer, vol. 43(3), pages 243-261, November.
  2. 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.
  3. 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.

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