Entry and Subcontracting in Public Procurement Auctions

Abstract

We empirically study how the interplay between entry and subcontracting choices is affected by the use of different auction formats in public procurement. The difference-in-differences strategy used exploits a data set of auctions for public works run alternately under first price and average bid auctions. We find that the use of first price auctions causes a marked decline in both entry and subcontracting. We also find that the type of firms entering first price auctions changes with firms becoming more likely to bid jointly with other firms in ad hoc joint ventures. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2071 . This paper was accepted by Teck-Hua Ho, behavioral economics.