Public Procurement Auctions Research Articles

A Comparative Study of Auction Theory Applications: Insights from India and Global Perspectives

This research paper presents a comprehensive comparative study of auction theory applications, exploring insights from both the Indian context and global practices. Auction theory plays a vital role in resource allocation, market efficiency, and economic decision-making across various industries. The study analyses different auction mechanisms used in India and other countries, evaluating their effectiveness and suitability in diverse economic environments. The paper delves into specific sectors where auction theory is applied, such as spectrum auctions for telecom operators, infrastructure project auctions, and public procurement auctions for goods and services. By examining auction outcomes, bidder strategies, and their impact on industries, the study provides valuable insights into the adaptation and effectiveness of auction theory in addressing unique challenges and opportunities. The research investigates challenges faced in implementing auction-based systems in India and other economies, offering potential solutions and policy measures to address issues like information asymmetry and regulatory complexities. It compares the economic implications of auction outcomes in India and other countries, including revenue generation and market efficiency. Moreover, the paper explores government initiatives that promote auction-based resource allocation and assesses policy considerations and regulatory frameworks governing auctions in different sectors. Emphasis is placed on the importance of inclusive auction practices in promoting equitable outcomes and fostering financial inclusion. By showcasing international case studies of successful and challenging auctions, the study draws lessons for India's future auction initiatives. The research contributes to the understanding of effective auction-based resource allocation strategies and their potential impact on diverse economic landscapes. In conclusion, this comparative study provides valuable insights into the adaptation, effectiveness, and economic implications of auction theory applications, benefiting policymakers, businesses, and economists seeking to optimize resource allocation and market efficiency. The findings offer valuable guidance for shaping auction mechanisms and promoting fair market practices in both Indian and global contexts. As the study enhances the understanding of auction theory's applications, it contributes to evidence-based decision-making, fostering efficient resource allocation and economic growth.

Award Price Estimator for Public Procurement Auctions Using Machine Learning Algorithms: Case Study with Tenders from Spain

Award Price Estimator for Public Procurement Auctions Using Machine Learning Algorithms: Case Study with Tenders from Spain

Detecting Bid-Rigging in Public Procurement. A Cluster Analysis Approach

This paper analyses the public procurement auctions for snow removal contracts to find out whether bid-rigging occurred. Due to the limited participation in the auction processes, detection of anticompetitive agreements was possible. The econometric analysis used in our study supported the findings of a cartel agreement. Cluster analysis, statistical hypothesis, normality and symmetry and nonparametric tests reveal two types of auctions: competitive and noncompetitive bids. The aim of this paper is to analyze the public procurement auctions with nonparametric statistical methods. Our findings are in line with the literature in the field.

Bidders Recommender for Public Procurement Auctions Using Machine Learning: Data Analysis, Algorithm, and Case Study with Tenders from Spain

Recommending the identity of bidders in public procurement auctions (tenders) has a significant impact in many areas of public procurement, but it has not yet been studied in depth. A bidders recommender would be a very beneficial tool because a supplier (company) can search appropriate tenders and, vice versa, a public procurement agency can discover automatically unknown companies which are suitable for its tender. This paper develops a pioneering algorithm to recommend potential bidders using a machine learning method, particularly a random forest classifier. The bidders recommender is described theoretically, so it can be implemented or adapted to any particular situation. It has been successfully validated with a case study: an actual Spanish tender dataset (free public information) which has 102,087 tenders from 2014 to 2020 and a company dataset (nonfree public information) which has 1,353,213 Spanish companies. Quantitative, graphical, and statistical descriptions of both datasets are presented. The results of the case study were satisfactory: the winning bidding company is within the recommended companies group, from 24% to 38% of the tenders, according to different test conditions and scenarios.

Bribery and Allocation Efficiency: Evidence From Public Procurement Auctions in Korea

A well-known scandal involving a public enterprise in Korea suggests that supplier firms use entertainment expenses to maintain corrupt ties with officials of purchasing agencies. Such corrupt ties may allow supplier firms to bid low in procurement auctions in anticipation of corrupt officials allowing low-cost goods and services to be supplied. Examining entertainment expenses and bidding data of firms participating in Korea Online E-Procurement System (KONEPS) auctions, we document the prevalence of the entertain-more-and-bid-low behavior, which suggests that a significant part of entertainment expenses are indeed bribes paid to public officials. We further show that the Antigraft Act of 2016, which limits entertaining public officials, had the intended effect of reducing corruption in public procurement. Finally, constructing a measure of firm-level bribe amounts from the response to the new law, we show that bribes are unlikely to enhance allocation efficiency contrary to the prediction of the grease-the-wheels hypothesis.

Employment behavior and the economic crisis: Evidence from winners and runners-up in procurement auctions

To estimate the differential effects of increased product demand on the demand for labor before and during the recent economic crisis, we use a combination of detailed employment data and the outcomes of public procurement auctions. We compare the employment reactions of the winner of an auction with the employment reactions of the second ranked firm (i.e., the runner-up firm). Assuming similar ex-ante winning probabilities for both firms, we view winning an auction as an exogenous shock to a firm's production and its demand for labor. Detailed daily employment data cover almost 600 construction firms and over 2500 auctions in Austria over the time period 2006 to 2009. Our main results show that the winning firm significantly increases labor demand in the weeks following an auction but only in the years before the recent economic crisis. It employs about 80 workers (around 3% of the workforce) more after the auction than the runner-up firm. Most of the adjustment takes place within one month after the demand shock. Winners predominantly fire fewer workers after winning than runner-up firms. In the crisis, however, firms do not employ more workers than their competitors after winning an auction. There are no effects on wages. We view labor hoarding and productivity improvements induced by the crisis as the most likely explanations for our findings. We also discuss implications for fiscal and stimulus policy in the crisis.

Resident Bid Preference, Affiliation, and Procurement Competition: Evidence from New Mexico

In public procurement auctions, governments routinely offer preferences to qualified firms in the form of bid discounts. Previous studies on bid discounting do not account for affiliation – a form of cost dependence between bidders that is likely to occur in a public procurement environment. Utilizing data from the New Mexico Department of Transportation’s Resident Preference Program, I develop and estimate an empirical model of firm bidding and entry that allows for affiliation in firms’ project costs. I find evidence of affiliation and show how it changes preference auction outcomes.

Anatomy of Public Procurement

We provide novel stylized facts about competition, bidding, entry and bidders across a wide spectrum of public procurement auctions using comprehensive and rich Finnish data. Competition for publicly procured contracts is relatively low with a median bidder count of two (three conditional on receiving any bids). Bidders typically are very heterogeneous in size, which likely limits competition further. Competition seems to work roughly as expected as on average (standardized) bids mainly decrease with the number of actual and potential bidders. Using information on registrations as a good proxy for potential bidders, we show that the ratio of actual to potential bidders increases with the number of actual bidders. We also show that being present in the contracting authority's municipality or province correlates positively with registering, entry (bidding) and winning, but other firm characteristics matter less. While attracting more competition by means of contract and auction rule design is a desirable policy goal and we show suggestive evidence that the use of scoring rule can be an entry barrier, increasing competition may be in practice difficult. Therefore, reservation prices may be a more useful policy tool to alleviate issues associated with the lack of competition.

Equilibrium competition, social welfare and corruption in procurement auctions

We study the effects of corruption on equilibrium competition and social welfare in a public procurement auction. A government pays costs to invite firms to the auction, and a bureaucrat who runs the auction may request a bribe from the winning firm. We first show that, with no corruption, the bureaucrat will invite more than the socially optimal number of firms to the auction. Second, the effects of corruption on equilibrium outcomes vary across different forms of bribery. For a fixed bribe, corruption does not affect equilibrium competition, yet it does induce social welfare loss. For a proportional bribe, the bureaucrat may invite either fewer or more firms, depending on how much he weights his private interest relative to the government payoff. Finally, we show that information disclosure may consistently induce more firms to be invited, regardless of whether there is corruption.

Interactions Across Firms and Bid Rigging

We evaluate whether an econometric technique that is used in the spatial econometrics and network effects literatures can be adopted as a test for collusive bidding in public procurement auctions. The proposed method is applied to the Swedish asphalt cartel that was discovered in 2001. Our dataset covers the period 1995–2009, which makes it possible to test for conditional independence between complementary cartel bids before and after 2001. Our estimates show a significant positive correlation between complementary cartel bids during the cartel period, whereas a non-significant correlation is shown during the later period. The variance of the parameter estimate of interest also differs between the periods, which suggests a structural change in bidding behavior among cartel members between the two periods.

Analysis of Entrant and Incumbent Bidding in Public Procurement Auctions

We empirically investigate differences in cost-effectiveness of public procurement auctions that are won by entrants and incumbents. We use a unique data set that covers all Turkish public procurement auctions for the years 2004 to 2010. We find that procurement prices of auctions won by entrants are significantly lower. More than half of the entrants cannot survive in the public procurement market and cannot win more than one auction. Our results indicate that policymakers should cultivate competition and promote entry in public procurement auctions.

한국의 공공조달 경매제도에 대한 이론 분석

한국의 공공조달 경매제도에 대한 이론 분석

Ownership Networks May Facilitate Bid-Rigging

Using a dataset of public procurement auctions and registered shareholders of all bidding firms in Singapore, we study the effects of ownership networks on prices and efficiency in product markets. We document prevalent identical bidding that is positively correlated with ownership networks among bidders. Moreover, the component of identical bidding correlated with ownership network is positively associated with contract prices. Structural estimates based on a model of first-price auctions show the removal of ownership network effects can improve a contractor's cost efficiency by more than it reduces contract price, highlighting how ownership networks can hinder competition.

The Role of Governors in Public Procurement

This paper analyses the role of autocratic governors in public procurement performance on the sub-national level. In particular, we estimate the impact of autocratic governors’ tenure and their local ties on competition over public procurement and contract execution. To this purpose, we use the data on public contracts on road construction and repair in Russian regions from 2011-2014 and match it with the biographical information of governors, who administrate the auctions. We find the evidence that governors who are appointed by the president and do not have pre-governing local ties in the region (governors-outsiders) demonstrate predatory behaviour, compared with governors with local ties (governors-insiders). In particular, governors-outsiders restrict the competition at public procurement auctions significantly more than governors-insiders. Moreover, this restriction becomes worse with tenure in office by governors-outsiders, while governors-insiders do not exert this tenure effect. We argue that this restriction of competition cannot be explained by the intention of better contracts execution. Namely, the delays in execution and the probability of contract termination both increase with tenure for governors-outsiders and are quite stable for governors-insiders.

Optimal bidder participation in public procurement auctions

This paper empirically identifies the optimal number of bidders to achieve the lowest procurement prices in public procurement auctions. We examine a unique data set that covers all Turkish government procurement auctions comprising more than half a million observations for the period 2005–2012. We present a novel and easy-to-implement method to investigate the number of bidders required for the public procurement markets to be competitive. Our results suggest that procurement costs decrease until six to eight bidders. Policy makers can employ the method to investigate the optimal number of bidders and design policies to promote competition. Moreover, policy makers can also make use of the optimal numbers as focal points to inspect whether competitive efficiency is achieved in public procurement auctions.

Bid Rigging and Entry Deterrence in Public Procurement: Evidence from an Investigation into Collusion and Corruption in Quebec

We study the impact of an investigation into collusion and corruption to learn about the organization of cartels in public procurement auctions. Our focus is on Montreal’s asphalt industry, where there have been allegations of bid rigging, market segmentation, complementary bidding, and bribes to bureaucrats, and where, in 2009, a police investigation was launched. We collect procurement data and use a difference-in-difference approach to compare outcomes before and after the investigation in Montreal and in Quebec City, where there have been no allegations of collusion or corruption. We find that entry and participation increased, and that the price of procurement decreased. We then decompose the price decrease to quantify the importance of two aspects of cartel organization, coordination and entry deterrence, for collusive pricing. We find that the latter explains only a small part of the decrease.

Design of public procurement auctions: evidence from cleaning contracts

AbstractWe analyze a regime change from beauty contests to first‐price sealed‐bid and scoring auctions, using Swedish data on public procurement of cleaning services. In beauty contests, the lowest bid often lost, leaving substantial money on the table. The procurement costs were similar before and after the regime change: (i) Entry strongly decreases the procurement cost but did not change. Entry would have decreased had the municipalities not adjusted the objects of auctions. (ii) Municipalities favored in‐house suppliers in the old regime, leading to more aggressive bidding by others. With favoritism reduced, these changes balanced each other out.

COMPARING PUBLIC PROCUREMENT AUCTIONS

AbstractThis article contrasts two auction formats often used in public procurement: first price auctions with ex post screening of bid responsiveness and average bid auctions (ABAs), in which the bidder closest to the average bid wins. The equilibrium analysis reveals that their ranking is ambiguous in terms of revenues, but the ABA is typically less efficient. Using a data set of Italian public procurement auctions run alternately under the two formats, a structural model of bidding is estimated for the subsample of first price auctions and used to quantify the efficiency loss under counterfactual ABAs.

Comparing Public Procurement Auctions

This paper contrasts two auction formats often used in public procurement: first price auctions with ex-post screening of bid responsiveness and average bid auctions, in which the bidder closest to the average bid wins. The equilibrium analysis reveals that their ranking is ambiguous in terms of revenues, but the average bid auction is typically less efficient. Using a data set of Italian public procurement auctions run alternately under the two formats, a structural model of bidding is estimated for the sub-sample of first price auctions and used to quantify the efficiency loss under counterfactual average bid auctions.

Optimal Bidder Participation in Public Procurement Auctions

We present an easy-to-implement method to identify the optimal number of bidders in public procurement auctions. We examine a unique data set that covers all government procurement auctions comprising more than half a million observations. We show that there is an optimal number of bidders at which the minimum procurement price can be achieved. These results have several policy implications. Policy makers can use the easy-to-implement method to identify the optimal number of bidders and employ them as focal points to analyze whether competitive efficiency is achieved in public procurement auctions.