Bidder Asymmetry In Infrastructure Procurement: Are There Any Fringe Bidders?

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. 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.

Price offers of pharmaceutical procurement in China: evidence from Guangdong province

“…The number of actual bidders is not only unobservable because of the limitation of the data set, but also because it encounters the problem of endogeneity [15]. More actual bidders would intensify the competition and reduce the bidding price.…”

“…De Silva et al [13] investigate the bidding patterns of entrants and incumbents in road construction auctions via the least squares method. Estache and Iimi [15] and Li and Philips [23] also provide empirical evidences to explain the effects of asymmetry in bidders. Ohashi [30] applies a difference-in-difference analysis to examine transparency in the procurement of construction works.…”

Bidders' Entry and Auctioneer's Rejection: Applying a Double Selection Model to Road Procurement Auctions

“…Maskin and Riley (2002) shows that if a weak bidder faces a strong bidder rather than another weak bidder, he responds with a more aggressive bid distribution in the sense of stochastic dominance. The empirical evidence is supportive of this (e.g., De Silva et al, 2002Estache and Iimi, 2008c). usually publish tender notices. About 13 companies or consortia per contract showed interest and purchased the relevant prequalification or bidding documents.…”

Joint Bidding, Governance and Public Procurement Costs:a Case of Road Projects*

“…To the extent that these governance aspects can promote firm entry, auctioneers may have to pay particular attention to the importance of new entrants in the tendering. Inviting a broader set of prospective bidders will be conducive to drawing low bids and curbing government procurement costs (Estache and Iimi 2008d).…”