The Effectiveness of Simple Homogeneous Commodity Procurement Under Rigid Govermental Regulation: The Case of Granulated Sugar Procurement in Russia

Abstract

In the 2000s the Russian government considered electronic auctions (e-auctions) as the best way to procure goods for public needs. In this paper we confirm this proposition using an empirical dataset of contracts for the procurement of granulated sugar in Russia in 2011. Our data shows that unit prices are higher in the case of long-term contracts. This result can be explained by the rigidity of public procurement regulations as Russian legislation allows only fixed price contracts. Under these conditions suppliers can participate in public procurement tenders for long-term contracts only if their price includes a “risk premium” covering additional expenses of the supplier in case of an unfavorable turn in the market. Our analysis shows that sugar prices in Russian public procurement are lower for contracts with higher volume. These results are in the line with conclusions of previous studies of public procurement in other countries. The influence of competition measured by the number of suppliers participating in the procurement procedure has a quadratic form. It means that the effect of a new participant is lower when number of competitors is higher and vice versa. Our analysis also shows that there are essential distinctions in the influence of the same factors on contract prices for competitive procedures and void auctions.