The Effect of Information on the Bidding and Survival of Entrants in Procurement Auctions

36 Pages Posted: 10 Oct 2007 Last revised: 16 Jan 2008

See all articles by Dakshina G. De Silva

Dakshina G. De Silva

Department of Economics, Lancaster University Management School

Georgia Kosmopoulou

University of Oklahoma - Department of Economics

Carlos Lamarche

University of Kentucky

Date Written: December 5, 2007

Abstract

In government procurement auctions of construction contracts, entrants are typically less informed and bid more aggressively than incumbent firms. This bidding behavior makes them more susceptible to losses affecting their prospect of survival. In April of 2000, the Oklahoma Department of Transportation started releasing the internal cost estimates to complete highway construction projects. Using newly developed quantile regression approaches, this paper examines the impact of the policy change on aggressive entrants. First, we find that the information release eliminates the bidding differential between entrants and incumbents attributed to informational asymmetries. Second, we argue that the policy change affects the prospects of survival of entrants in the market. We find that those who used to exit the market relatively soon are now staying 37 percent longer, while at the median level bidding duration increased by roughly 68 percent. The policy has the potential to encourage entry in government procurement auctions and thus increase competition.

Keywords: Entry, Survival, Information Release, Procurement Auctions

JEL Classification: D44, H57

Suggested Citation

De Silva, Dakshina G. and Kosmopoulou, Georgia and Lamarche, Carlos, The Effect of Information on the Bidding and Survival of Entrants in Procurement Auctions (December 5, 2007). Available at SSRN: https://ssrn.com/abstract=1020355 or http://dx.doi.org/10.2139/ssrn.1020355

Dakshina G. De Silva

Department of Economics, Lancaster University Management School ( email )

Lancaster LA1 4YX
United Kingdom

Georgia Kosmopoulou (Contact Author)

University of Oklahoma - Department of Economics ( email )

633 Elm Avenue
306 Ellison Hall
Norman, OK 73019
United States
405-325-3083 (Phone)
405-325-5842 (Fax)

HOME PAGE: http://georgiakosmopoulou.oucreate.com/

Carlos Lamarche

University of Kentucky ( email )

Lexington, KY 40506
United States

HOME PAGE: http://gattonweb.uky.edu/Faculty/lamarche/

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