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

Author

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  • Estache, Antonio
  • Iimi, Atsushi

Abstract

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.

Suggested Citation

  • Estache, Antonio & Iimi, Atsushi, 2008. "Bidder asymmetry in infrastructure procurement : are there any fringe bidders ?," Policy Research Working Paper Series 4660, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4660
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    References listed on IDEAS

    as
    1. Estache, Antonio & Iimi, Atsushi, 2008. "Procurement efficiency for infrastructure development and financial needs reassessed," Policy Research Working Paper Series 4662, The World Bank.
    2. 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, September.
    3. repec:bpj:rneart:v:4:y:2005:i:3:p:220-242 is not listed on IDEAS
    4. Eric Maskin & John Riley, 2000. "Asymmetric Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 413-438.
    5. Tong Li & Xiaoyong Zheng, 2009. "Entry and Competition Effects in First-Price Auctions: Theory and Evidence from Procurement Auctions," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1397-1429.
    6. 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.
    7. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
    8. Atsushi Iimi, 2006. "Auction Reforms for Effective Official Development Assistance," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 28(2), pages 109-128, March.
    9. Benitez Daniel & Estache Antonio, 2005. "How Concentrated are Global Infrastructure Markets?," Review of Network Economics, De Gruyter, vol. 4(3), pages 1-23, September.
    10. Zheng, Charles Z., 2001. "High Bids and Broke Winners," Journal of Economic Theory, Elsevier, vol. 100(1), pages 129-171, September.
    11. 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.
    12. 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, September.
    13. 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.
    14. 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.
    15. 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.
    16. Benjamin A. Olken, 2007. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia," Journal of Political Economy, University of Chicago Press, vol. 115, pages 200-249.
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    Citations

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    Cited by:

    1. Paul Collier & Martina Kirchberger & Måns Söderbom, 2016. "The Cost of Road Infrastructure in Low- and Middle-Income Countries," World Bank Economic Review, World Bank Group, vol. 30(3), pages 522-548.
    2. Sergio Galletta & Mario Jametti & Agustin Redonda, 2015. "Highway to Economic Growth? Competition in Public Works Tenders in the Democratic Republic of Congo," South African Journal of Economics, Economic Society of South Africa, vol. 83(2), pages 240-252, June.
    3. Bedri Kamil Onur Tas, 2017. "Collusion Detection in Public Procurement with Limited Information," Working Papers 1127, Economic Research Forum, revised 08 Oct 2017.
    4. Atsushi Iimi, 2013. "Testing Low-Balling Strategy in Rural Road Procurement," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 43(3), pages 243-261, November.
    5. Estache, Antonio & Iimi, Atsushi, 2009. "Auctions with endogenous participation and quality thresholds : evidence from ODA infrastructure procurement," Policy Research Working Paper Series 4853, The World Bank.
    6. Shigeharu Okajima & Hiroko Okajima, 2016. "Impact of environmental regulation and the 2011 earthquake on the Japanese electricity industry," Journal of Regulatory Economics, Springer, vol. 49(2), pages 223-249, April.
    7. Ying Yao & Makoto Tanaka, 2016. "Price offers of pharmaceutical procurement in China: evidence from Guangdong province," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(5), pages 563-575, June.
    8. Sheng Li & Peter Philips, 2012. "Construction Procurement Auctions: Do Entrant Bidders Employ More Aggressive Strategies than Incumbent Bidders?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(3), pages 191-205, May.

    More about this item

    Keywords

    Investment and Investment Climate; Government Procurement; Debt Markets; E-Business; Infrastructure Economics;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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