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Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?

  • Antonio Estache
  • A. Iimi

Asymmetric auctions are among the most rapidly growing areas in the auction literature. The potential benefits from improved auction efficiency are expected to be enormous in public procurement auctions related to official development projects. Entrant bidders are considered a key to enhance competition in an auction and break potential collusive arrangements among incumbent bidders. Asymmetric auction theory predicts that weak (fringe) bidders would bid more aggressively when they are faced with a strong (incumbent) opponent. With ODA procurement data, it has been found that in the major infrastructure sectors, entrants submitted systematically aggressive bids in the presence of an incumbent bidder. It is also shown that high concentration of incumbents in an auction would harm auction efficiency, raising procurement costs. The results suggest that auctioneers should encourage fringe bidders to actively participate in the bidding process while maintaining the quality of the projects. It is conducive to enhancing competitive circumstances in public procurements and improving allocative efficiency.

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/44035/1/RePEc_eca_wpaper_2008_020.pdf
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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number 2008_020.

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Length: 23 p.
Date of creation: Mar 2008
Date of revision:
Publication status: Published by: ECARES, Université Libre de Bruxelles, Bruxelles
Handle: RePEc:eca:wpaper:2008_020
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  1. Srabana Gupta, 2002. "Competition and collusion in a government procurement auction market," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(1), pages 13-25, March.
  2. Antonio Estache & A. Iimi, 2008. "Procurement Efficiency for Infrastructure Development and Financial Needs Reassessed," Working Papers ECARES 2008_022, ULB -- Universite Libre de Bruxelles.
  3. De Silva, Dakshina G. & Dunne, Timothy & Kosmopoulou, Georgia, 2002. "Sequential bidding in auctions of construction contracts," Economics Letters, Elsevier, vol. 76(2), pages 239-244, July.
  4. Antonio Estache & Atsushi Iimi, 2009. "Joint Bidding, Governance And Public Procurement Costs:A Case Of Road Projects ," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 80(3), pages 393-429, 09.
  5. 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, vol. 51(3), pages 295-316, 09.
  6. Zheng, Charles Zhoucheng, 2001. "High Bids and Broke Winners," Staff General Research Papers 12665, Iowa State University, Department of Economics.
  7. Atsushi Iimi, 2006. "Auction Reforms for Effective Official Development Assistance," Review of Industrial Organization, Springer, vol. 28(2), pages 109-128, 03.
  8. Benitez, Daniel & Estache, Antonio, 2005. "How concentrated are global infrastructure markets?," Policy Research Working Paper Series 3513, The World Bank.
  9. Patrick Bajari & Robert S. McMillan & Steve Tadelis, 2003. "Auctions Versus Negotiations in Procurement: An Empirical Analysis," NBER Working Papers 9757, National Bureau of Economic Research, Inc.
  10. Omar Arias & Walter Sosa-Escudero & Kevin F. Hallock, 2001. "Individual heterogeneity in the returns to schooling: instrumental variables quantile regression using twins data," Empirical Economics, Springer, vol. 26(1), pages 7-40.
  11. Benjamin A. Olken, 2005. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia," NBER Working Papers 11753, National Bureau of Economic Research, Inc.
  12. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  13. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  14. repec:rne:rneart:v:4:y:2005:i:3:p:220-242 is not listed on IDEAS
  15. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  16. Tong Li & Isabelle Perrigne, 2003. "Timber Sale Auctions with Random Reserve Prices," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 189-200, February.
  17. Tong Li & Xiaoyong Zheng, 2006. "Entry and competition effects in first-price auctions: theory and evidence from procurement auctions," CeMMAP working papers CWP13/06, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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