Bid Behavior and Policy Design in Public Food Procurement

Public food procurement contracts are commonly awarded through competitive sealed-bid procedures in which vendors strategically determine bid prices while competing for institutional food supply contracts. However, procurement outcomes depend not only on underlying costs but also on strategic vendor responses within competitive bidding environments. This paper develops an integrated empirical and structural framework to analyze strategic bidding behavior in public lettuce procurement. First, a lognormal bid-distribution model is estimated in which conditional bid distributions vary according to procurement costs, local sourcing status, vendor size, and lettuce product category. Second, the estimated probability density and cumulative distribution functions are incorporated into a Bayes Nash equilibrium model of first-price procurement auctions to derive optimal equilibrium bid prices under alternative competition scenarios. Results indicate substantial cost pass-through into submitted bids and significant heterogeneity across vendor types and lettuce categories. Small vendors submit substantially higher bids than comparable large vendors. Local sourcing is associated with modestly higher bid prices, although the estimated effect is not statistically significant after controlling for procurement costs, vendor size, and product categories. Increased bidder participation substantially reduces equilibrium markups through intensified competitive pressure. More broadly, the study demonstrates how empirically estimated bid distributions can be integrated with structural auction theory to evaluate strategic vendor behavior in public food procurement markets. The paper contributes an empirically calibrated Bayes Nash equilibrium framework for analyzing strategic bidding behavior and equilibrium pricing in first-price public food procurement auctions.