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The Effect of Information on the Bidding and Survival of Entrants in Procurement Auctions

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  • De Silva, Dakshina G.
  • Kosmopoulou, Georgia
  • Lamarche, Carlos

Abstract

In government procurement auctions of construction contracts, entrants are typically less informed and bid more aggressively than incumbent firms. This bidding behavior makes them more susceptible to losses a¤ecting their prospect of survival. In April of 2000, the Oklahoma Department of Transportation started releasing the internal cost estimates to complete highway construction projects. Using newly developed quantile regression approaches, this paper examines the impact of the policy change on aggressive entrants. First, we find that the information release eliminates the bidding differential between entrants and incumbents attributed to informational asymmetries. Second, we argue that the policy change a¤ects the prospects of survival of entrants in the market. We find that those who used to exit the market relatively soon are now staying 37 percent longer, while at the median level bidding duration increased by roughly 68 percent. The policy has the potential to encourage entry in government procurement auctions and thus increase competition.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5236.

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Date of creation: 08 Jun 2007
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Handle: RePEc:pra:mprapa:5236

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Keywords: Entry; Survival; Information Release; Procurement Auctions;

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References

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  1. Bernd Fitzenberger & Ralf Wilke, 2006. "Using quantile regression for duration analysis," AStA Advances in Statistical Analysis, Springer, Springer, vol. 90(1), pages 105-120, March.
  2. Kenneth Hendricks & Joris Pinkse & Robert H. Porter, 2003. "Empirical Implications of Equilibrium Bidding in First--Price, Symmetric, Common Value Auctions," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(1), pages 115-145, January.
  3. Jacob K. Goeree & Theo Offerman, 2003. "Competitive Bidding in Auctions with Private and Common Values," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(489), pages 598-613, 07.
  4. Maskin, Eric & Riley, John, 2000. "Equilibrium in Sealed High Bid Auctions," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(3), pages 439-54, July.
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  8. Koenker, Roger, 2004. "Quantile regression for longitudinal data," Journal of Multivariate Analysis, Elsevier, Elsevier, vol. 91(1), pages 74-89, October.
  9. Dakshina De Silva & Timothy Dunne & Anuruddha Kankanamge & Georgia Kosmopoulou, 2005. "The Impact of Public Information on Bidding in Highway Procurement Auctions," Microeconomics, EconWPA 0511011, EconWPA.
  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, Wiley Blackwell, vol. 51(3), pages 295-316, 09.
  11. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  12. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, Econometric Society, vol. 71(5), pages 1443-1489, 09.
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  15. Lebrun, Bernard, 1999. "First Price Auctions in the Asymmetric N Bidder Case," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 125-42, February.
  16. Pesendorfer, Martin, 2000. "A Study of Collusion in First-Price Auctions," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(3), pages 381-411, July.
  17. Dunne, Timothy & Klimek, Shawn D. & Roberts, Mark J., 2005. "Exit from regional manufacturing markets: The role of entrant experience," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 23(5-6), pages 399-421, June.
  18. Marion, Justin, 2007. "Are bid preferences benign? The effect of small business subsidies in highway procurement auctions," Journal of Public Economics, Elsevier, Elsevier, vol. 91(7-8), pages 1591-1624, August.
  19. Quang Vuong & Sandra Campo & Isabelle Perrigne, 2003. "Asymmetry in first-price auctions with affiliated private values," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 18(2), pages 179-207.
  20. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 72(2), pages 334-38, May.
  21. De Silva, Dakshina G. & Jeitschko, Thomas D. & Kosmopoulou, Georgia, 2005. "Stochastic synergies in sequential auctions," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 23(3-4), pages 183-201, April.
  22. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 33-50, January.
  23. Elena Krasnokutskaya, 2004. "Identification and Estimation in Highway Procurement Auctions under Unobserved Auction Heterogeneity," PIER Working Paper Archive, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 05-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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Citations

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Cited by:
  1. Dakshina De Silva & Thomas Jeitschko & Georgia Kosmopoulou, 2009. "Entry and Bidding in Common and Private Value Auctions with an Unknown Number of Rivals," Review of Industrial Organization, Springer, Springer, vol. 35(1), pages 73-93, September.
  2. De Silva, Dakshina G. & Hubbard, Timothy P. & Kosmopoulou, Georgia, 2013. "Efficacy of a Bidder Training Program: Lessons from LINC," MPRA Paper, University Library of Munich, Germany 51329, University Library of Munich, Germany.
  3. İlke Onur & Rasim Özcan & Bedri Taş, 2012. "Public Procurement Auctions and Competition in Turkey," Review of Industrial Organization, Springer, Springer, vol. 40(3), pages 207-223, May.
  4. Klenio Barbosa & Pierre C. Boyer, 2012. "Discrimination in Dynamic Procurement Design with Learning-by-doing," CESifo Working Paper Series, CESifo Group Munich 3947, CESifo Group Munich.
  5. Bedri Kamil Onur Tas, 2014. "How to Achieve Efficiency in Public Procurement Auctions," EcoMod2014, EcoMod 6728, EcoMod.
  6. De Silva, Dakshina G. & Kosmopoulou, Georgia & Lamarche, Carlos, 2012. "Survival of contractors with previous subcontracting experience," Economics Letters, Elsevier, Elsevier, vol. 117(1), pages 7-9.
  7. Stéphane Saussier & Carine Staropoli & Anne Yvrande-Billon, 2009. "Public–Private Agreements, Institutions, and Competition: When Economic Theory Meets Facts," Review of Industrial Organization, Springer, Springer, vol. 35(1), pages 1-18, September.

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