Dynamic Oligopoly in Procurement Auction Markets

52 Pages Posted: 17 Nov 2023

See all articles by Dakshina G. De Silva

Dakshina G. De Silva

Lancaster University - Department of Economics

Matthew L. Gentry

Florida State University

Pasquale Schiraldi

London School of Economics & Political Science (LSE) - Department of Economics

Date Written: October 31, 2023

Abstract

This study develops a model of dynamic oligopoly competition in large procurement auction markets and applies this to Texas Department of Transportation (TxDOT) highway construction and maintenance contracts. Forward-looking firms enter, exit, grow, and gain experience while competing in a sequence of low-price, sealed-bid auctions. Firms play a Moment-based Markovian Equilibrium (MME) similar in spirit to Ifrach and Weintraub (2017), rendering analysis tractable even in markets with hundreds of firms. Structural estimates based on TxDOT data from 2000-2012 highlight the significant role of dynamic factors like firm experience in shaping market outcomes. The research intends to evaluate the impact of procurement mechanism design, including reserve price policies and eligibility requirements, through counterfactual analysis of long-run industry responses to alternative mechanisms.

Keywords: Auctions, Dynamic Games, Oligopoly, Market Design

JEL Classification: D43, D44, D47

Suggested Citation

De Silva, Dakshina G. and Gentry, Matthew L. and Schiraldi, Pasquale, Dynamic Oligopoly in Procurement Auction Markets (October 31, 2023). Available at SSRN: https://ssrn.com/abstract=4607350 or http://dx.doi.org/10.2139/ssrn.4607350

Dakshina G. De Silva

Lancaster University - Department of Economics ( email )

Matthew L. Gentry (Contact Author)

Florida State University ( email )

Tallahassee, FL 30306-2180
United States

HOME PAGE: http://www.matthewgentry.net

Pasquale Schiraldi

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://sites.google.com/view/schiraldi-pasquale/home

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