No abstract

In this paper, we document border effects in the award of public contracts in the European single market. We use a dataset of 1.8 million contract awards, which we match to geolocations to estimate a gravity model of procurement flows between European NUTS3 region pairs. We find very sizable cross-national border effects for all types of goods and services, even after controlling for physical distance, currency, cultural differences and other variables. For example, ‘local’ bidders for IT services contracts are almost 250 times more likely to be awarded a contract than ‘foreign’ bidders. More surprisingly, we find substantial cross-regional border effects within countries. While we document that firms’ bidding decisions are subject to border effects, we cannot exclude a home bias of contracting authorities in the award of public contracts.

This article studies how product introduction decisions relate to profitability and uncertainty in the context of multi-product firms and product differentiation. These two features, common to many modern industries, have not received much attention in the literature as compared to the classical problem of firm entry, even if the determinants of firm and product entry are quite different. The theoretical predictions about the sign of the impact of uncertainty on product entry are not conclusive. Therefore, an econometric model relating firms' product introduction decisions with profitability and profit uncertainty is proposed. Firm's estimated profits are obtained from a structural model of product demand and supply, and uncertainty is proxied by profits' variance. The empirical analysis is carried out using data on the Spanish car industry for the period 1990-2000. The results show a positive relationship between product introduction and profitability, and a negative one with respect to profit variability. Interestingly, the degree of uncertainty appears to be a driving force of entry stronger than profitability, suggesting that the product proliferation process in the Spanish car market may have been mainly a consequence of lower uncertainty rather than the result of having a more profitable market.

This paper computes and compares alternative quality-adjusted price indexes for new cars in Spain in the period 1990-2000. The proposed hedonic approach simultaneously controls for time-invariant unobserved product effects and age effects, that can be interpreted as a proxy for time-variant unobservables. The results show that the non-adjusted price index largely overstates the increase in the cost of living induced by changes in car prices and that the previous evidence for this market has not measured the real extent of that bias, probably due to the omission of controls for unobservables. It is also shown that omitting age effects can lead to misleading conclusions. In particular, their omission would imply that the year-on-year Spanish Consumer Price Index would have been overestimated by around 0.1 % on average during the sample period. Excluding both the controls for age effects and time-invariant unobservables would have increased this bias to 0.2 %. The estimated price indexes give also some insights on what could have been the determinants of price evolution in the Spanish car market.