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Competition and collusion in a government procurement auction market

  • Srabana Gupta
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    This paper tests the structure performance hypothesis by examining a highway construction industry in Florida. In the first-price sealed bid auction literature, there is little evidence on how many bidders are required for these markets to be competitive. Two different indicators are used to capture the transition from collusion to competition—a discontinuous effect of the number of bidders on winning bid price, and an associative effect of repeat bidding of a contractor with the same set of firms. The results suggest that winning bids decrease as the number of bidders rises until there are about six to eight firms. Since subsequent entry has no effect on the winning bid price, it is concluded that the highway construction market becomes competitive with about eight bidders. Copyright International Atlantic Economic Society 2002

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    Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 30 (2002)
    Issue (Month): 1 (March)
    Pages: 13-25

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    Handle: RePEc:kap:atlecj:v:30:y:2002:i:1:p:13-25
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    1. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    2. Feinstein, Jonathan S & Block, Michael K & Nold, Frederick C, 1985. "Asymmetric Information and Collusive Behavior in Auction Markets," American Economic Review, American Economic Association, vol. 75(3), pages 441-60, June.
    3. Brannman, Lance & Klein, J Douglass & Weiss, Leonard W, 1987. "The Price Effects of Increased Competition in Auction Markets," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 24-32, February.
    4. Brannman, Lance Eric, 1996. "Potential Competition and Possible Collusion in Forest Service Timber Auctions," Economic Inquiry, Western Economic Association International, vol. 34(4), pages 730-45, October.
    5. Sherrill Shaffer, 1990. "Stable cartels with a Cournot fringe," Working Papers 90-24, Federal Reserve Bank of Philadelphia.
    6. Froeb, Luke M. & Koyak, Robert A. & Werden, Gregory J., 1993. "What is the effect of bid-rigging on prices?," Economics Letters, Elsevier, vol. 42(4), pages 419-423.
    7. Kenneth Hendricks & Robert Porter, 1989. "Collusion in Auctions," Discussion Papers 817, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Andrea Lofaro, 1999. "When imperfect collusion is profitable," Journal of Economics, Springer, vol. 70(3), pages 235-259, October.
    9. John McMillan, 1991. "Dango: Japan'S Price-Fixing Conspiracies," Economics and Politics, Wiley Blackwell, vol. 3(3), pages 201-218, November.
    10. Reiss, Peter C & Spiller, Pablo T, 1989. "Competition and Entry in Small Airline Markets," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages S179-202, October.
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