Maintaining Competition in Recurrent Procurement Contracts: A Case Study on the London Bus Market

Abstract

Under recurrent procurement, the awarding of a contract to a firm may put it in an advantageous position in future tenders, which may reduce competition over time. The objective of this paper is to study the dynamics of competition for tendered contracts, focusing on factors that may generate incumbent advantage. Particular attention is given to learning economies, sunk costs of entry and switching costs for the procurer. The paper then applies these insights to analyse empirically the evolution of competition in the market for local bus services in London.

Keywords: Dynamic Competition, Procurement and Incumbent advantage

JEL Classification: L24, L92, L40.