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Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?

Author

Listed:
  • Antonio Estache
  • A. Iimi
Abstract
Asymmetric auctions are among the most rapidly growing areas in the auction literature. The potential benefits from improved auction efficiency are expected to be enormous in public procurement auctions related to official development projects. Entrant bidders are considered a key to enhance competition in an auction and break potential collusive arrangements among incumbent bidders. Asymmetric auction theory predicts that weak (fringe) bidders would bid more aggressively when they are faced with a strong (incumbent) opponent. With ODA procurement data, it has been found that in the major infrastructure sectors, entrants submitted systematically aggressive bids in the presence of an incumbent bidder. It is also shown that high concentration of incumbents in an auction would harm auction efficiency, raising procurement costs. The results suggest that auctioneers should encourage fringe bidders to actively participate in the bidding process while maintaining the quality of the projects. It is conducive to enhancing competitive circumstances in public procurements and improving allocative efficiency.

Suggested Citation

  • Antonio Estache & A. Iimi, 2008. "Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?," Working Papers ECARES 2008_020, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:eca:wpaper:2008_020
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    References listed on IDEAS

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    Cited by:

    1. Jihui Chen & Maochao Xu, 2015. "Asymmetry and revenue in second-price auctions: a majorization approach," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(3), pages 625-640, July.
    2. Paul Collier & Martina Kirchberger & Måns Söderbom, 2016. "The Cost of Road Infrastructure in Low- and Middle-Income Countries," The World Bank Economic Review, World Bank, vol. 30(3), pages 522-548.
    3. Andrew Stocking & James Baumgardner & Melinda Buntin & Anna Cook, 2014. "Examining the Number of Competitors and the Cost of Medicare Part D: Working Paper 2014-04," Working Papers 45553, Congressional Budget Office.
    4. Qiao, Yu & Labi, Samuel & Fricker, Jon D., 2021. "Does highway project bundling policy affect bidding competition? Insights from a mixed ordinal logistic model," Transportation Research Part A: Policy and Practice, Elsevier, vol. 145(C), pages 228-242.
    5. Sergio Galletta & Mario Jametti & Agustin Redonda, 2015. "Highway to Economic Growth? Competition in Public Works Tenders in the Democratic Republic of Congo," South African Journal of Economics, Economic Society of South Africa, vol. 83(2), pages 240-252, June.
    6. Bedri Kamil Onur Tas, 2017. "Collusion Detection in Public Procurement with Limited Information," Working Papers 1127, Economic Research Forum, revised 08 Oct 2017.
    7. Atsushi Iimi, 2013. "Testing Low-Balling Strategy in Rural Road Procurement," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 43(3), pages 243-261, November.
    8. Estache, Antonio & Iimi, Atsushi, 2009. "Auctions with endogenous participation and quality thresholds : evidence from ODA infrastructure procurement," Policy Research Working Paper Series 4853, The World Bank.
    9. Shigeharu Okajima & Hiroko Okajima, 2016. "Impact of environmental regulation and the 2011 earthquake on the Japanese electricity industry," Journal of Regulatory Economics, Springer, vol. 49(2), pages 223-249, April.
    10. Qiao, Yu & Fricker, Jon D. & Labi, Samuel, 2019. "Effects of bundling policy on project cost under market uncertainty: A comparison across different highway project types," Transportation Research Part A: Policy and Practice, Elsevier, vol. 130(C), pages 606-625.
    11. Sheng Li & Peter Philips, 2012. "Construction Procurement Auctions: Do Entrant Bidders Employ More Aggressive Strategies than Incumbent Bidders?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(3), pages 191-205, May.

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    More about this item

    Keywords

    Public procurement; auction theory; infrastructure development; bidder asymmetry; fringe bidders; market entry;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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