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Bidder asymmetry in infrastructure procurement : are there any fringe bidders ?

  • Estache, Antonio
  • Iimi, Atsushi

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. Using official development assistance procurement data, this paper finds that in the major infrastructure sectors, entrants submitted systematically aggressive bids in the presence of an incumbent bidder. The findings also show that a 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. This is conducive to enhancing competitive circumstances in public procurements and improving allocative efficiency.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4660.

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Date of creation: 01 Jul 2008
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Handle: RePEc:wbk:wbrwps:4660
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  1. Srabana Gupta, 2002. "Competition and collusion in a government procurement auction market," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(1), pages 13-25, March.
  2. Estache, Antonio & Iimi, Atsushi, 2008. "Procurement efficiency for infrastructure development and financial needs reassessed," Policy Research Working Paper Series 4662, The World Bank.
  3. Benjamin Olken, 2005. "Monitoring corruption: Evidence from a field experiment in indonesia," Natural Field Experiments 00317, The Field Experiments Website.
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  6. Steven Tadelis, 2009. "Auctions Versus Negotiations in Procurement: An Empirical Analysis," Journal of Law, Economics and Organization, Oxford University Press, vol. 25(2), pages 372-399, October.
  7. 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.
  8. Flyvbjerg, Bent & Holm, Mette Skamris & Buhl, Søren, 2006. "Underestimating Costs in Public Works Projects: Error or Lie?," University of California Transportation Center, Working Papers qt98r01936, University of California Transportation Center.
  9. 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.
  10. Zheng, Charles Zhoucheng, 2001. "High Bids and Broke Winners," Staff General Research Papers Archive 12665, Iowa State University, Department of Economics.
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  14. Antonio Estache & A. Iimi, 2009. "Joint Bidding, Governance and Public Procurement Costs: A case of road projects," ULB Institutional Repository 2013/43906, ULB -- Universite Libre de Bruxelles.
  15. Eric Maskin & John Riley, 2000. "Asymmetric Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 413-438.
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  17. 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.
  18. 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.
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