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The Determinants of Price and Quality in Competitively Tendered Contracts

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  • Domberger, Simon
  • Hall, Christine
  • Li, Eric Ah Lik

Abstract

Traditional analysis of the impact of competitive tendering on service provision has focused on costs and prices. Critics have argued that price reductions lead to lower quality. We tested this hypothesis using a two equation econometric model, with data from a panel of 61 cleaning service contracts. The results indicated that while competition reduced price significantly, quality of service was maintained or even enhanced. The effect of competition turned out to be greater on prices than on quality, and the influence of ownership appeared to be negligible on both. The evidence does not support the hypothesis that efficiency gains are traded off for lower quality. Copyright 1995 by Royal Economic Society.

Suggested Citation

  • Domberger, Simon & Hall, Christine & Li, Eric Ah Lik, 1995. "The Determinants of Price and Quality in Competitively Tendered Contracts," Economic Journal, Royal Economic Society, vol. 105(433), pages 1454-1470, November.
  • Handle: RePEc:ecj:econjl:v:105:y:1995:i:433:p:1454-70
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    Cited by:

    1. Andrea Boitani & Marcella Nicolini & Carlo Scarpa, 2013. "Do competition and ownership matter? Evidence from local public transport in Europe," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1419-1434, April.
    2. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2010. "Price and quality in spatial competition," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 471-480, November.
    3. Nick Adnett, 1998. "The Acquired Rights Directive and Compulsory Competitive Tendering in the UK: An Economic Perspective," European Journal of Law and Economics, Springer, vol. 6(1), pages 69-81, July.
    4. Hensher, D. A. & Louviere, J. J. & Hansen, D. E., 2000. "The use of mixtures of market and experimental choice data in establishing guideline weights for evaluating competitive bids in a transport organisation," Transport Policy, Elsevier, vol. 7(4), pages 279-286, October.
    5. Auriol, Emmanuelle, 2006. "Corruption in procurement and public purchase," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 867-885, September.
    6. Maietta, Ornella Wanda & Gorgitano, Maria Teresa, 2016. "School meals and pupil satisfaction. Evidence from Italian primary schools," Food Policy, Elsevier, vol. 62(C), pages 41-55.
    7. repec:eee:regeco:v:64:y:2017:i:c:p:117-136 is not listed on IDEAS
    8. Paul H. Jensen & Robin E. Stonecash, 2004. "The Efficiency of Public Sector Outsourcing Contracts: A Literature Review," Melbourne Institute Working Paper Series wp2004n29, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    9. Bertacchini, Enrico & Dalle Nogare, Chiara, 2014. "Public provision vs. outsourcing of cultural services: Evidence from Italian cities," European Journal of Political Economy, Elsevier, vol. 35(C), pages 168-182.
    10. Andersson, Fredrik & Jordahl, Henrik, 2011. "Outsourcing Public Services: Ownership, Competition, Quality and Contracting," Working Paper Series 874, Research Institute of Industrial Economics.
    11. Stefan Szymanski, 1996. "The impact of compulsory competitive tendering on refuse collection services," Fiscal Studies, Institute for Fiscal Studies, vol. 17(3), pages 1-19, August.
    12. Dieter Pennerstorfer, 2014. "Price and Quality Competition in Spatial Markets. The Case of Camping Sites," WIFO Working Papers 466, WIFO.
    13. repec:eee:labchp:v:3:y:1999:i:pc:p:3573-3630 is not listed on IDEAS
    14. Rob Aalbers & Victoria Shestalova & Sander Onderstal, 2004. "Better safe than sorry? Reliability policy in network industries," CPB Document 73, CPB Netherlands Bureau for Economic Policy Analysis.
    15. Robin G. Milne & Robert E. Wright, 2004. "Competition and Costs: Evidence from Competitive Tendering in the Scottish National Health Service," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(1), pages 1-23, February.
    16. Michael, Steven C., 2000. "The effect of organizational form on quality: the case of franchising," Journal of Economic Behavior & Organization, Elsevier, vol. 43(3), pages 295-318, November.
    17. Hensher, David A., 2007. "Bus transport: Economics, policy and planning," Research in Transportation Economics, Elsevier, vol. 18(1), pages 1-507, January.
    18. Andreas Bergh, 2014. "Sweden and the Revival of the Capitalist Welfare State," Books, Edward Elgar Publishing, number 15717, June.
    19. Christopher M Snyder & Robert P Trost & R. Derek Trunkey, 2001. "Bidding behavior in the department of defense's commercial activities competitions," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 20(1), pages 21-42.
    20. Gregory, Robert G. & Borland, Jeff, 1999. "Recent developments in public sector labor markets," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 53, pages 3573-3630 Elsevier.
    21. Hoekman, Bernard, 1998. "Using International Institutions to Improve Public Procurement," World Bank Research Observer, World Bank Group, vol. 13(2), pages 249-269, August.

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