On the Competitive Effects of Screening in Procurement

Abstract

Procuring authorities frequently use screening in order to mitigate risky bids. This study estimates the effect of bid screening and litigation on entry and bidding using a unique data set on highway construction procurement auctions in Poland. The market exhibits a screening method that ex post selects eligible offers. We demonstrate with an empirical model that this method disproportionately affects small firms and creates a barrier to entry. Our results suggest that screening increases bids by two channels. First, it directly inflates bids as well as decreasing entry. Second, in a competitive market, lower entry also inflates bids and prices.

Keywords: Procurement, Auctions, Market Design, Litigation

JEL Classification: H57, D44, D47, L5