Infrastructure projects are often technically complicated and highly customized. Therefore, procurement competition tends to be limited. Competition is the single most important factor toward auction efficiency and anti-corruption. However, the degree of competition realized is closely related to bidders’ entry decision and auctioneer’s decision on how to assess technical attributes in the bid evaluation process. The paper estimates the interactive effects among quality, entry and competition. With data on procurement auctions for electricity projects in developing countries, it is found that large electricity works are by nature costly and can attract only a few participants. The limited competition would raise government procurement costs. In addition, high technical requirements are likely to be imposed for these large-scale projects, which will in turn add extra costs for the better quality of works and limit bidder participation furthermore. The evidence suggests that the quality is of particular importance in large infrastructure projects and auctioneers cannot easily substitute prices for quality.
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Paper provided by Université Libre de Bruxelles, Ecares in its series ECARES Working Papers with number
2009_006.
Find related papers by JEL classification: D44 - Microeconomics - - Market Structure and Pricing - - - Auctions H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
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