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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.

Suggested Citation

  • De Silva, Dakshina G. & Kosmopoulou, Georgia & Lamarche, Carlos, 2007. "The Effect of Information on the Bidding and Survival of Entrants in Procurement Auctions," MPRA Paper 5236, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:5236
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    References listed on IDEAS

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    More about this item

    Keywords

    Entry; Survival; Information Release; Procurement Auctions;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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