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Competition in the economic crisis: Analysis of procurement auctions.

Gugler K, Weichselbaumer M, Zulehner C - Eur Econ Rev (2015)

Bottom Line: We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions.We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points.We also find that without the government stimulus package this decrease would have been larger.

View Article: PubMed Central - PubMed

Affiliation: Vienna University of Economics and Business, Welthandelsplatz 1, A-1020 Vienna, Austria.

ABSTRACT

We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions. Using data from Austrian construction procurements, we estimate bidders׳ construction costs within a private value auction model. We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points. We also find that without the government stimulus package this decrease would have been larger. These two pieces of evidence point to pro-cyclical markups.

No MeSH data available.


Development of the average number of bidders, construction activity and backlog. Notes: 12-period trailing moving averages; backlog is calculated as in Jofre-Bonet and Pesendorfer (2003) based on the estimation sample, as is the number of firms; flow of orders in construction sector and in public procurement from Statistik Austria.
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f0015: Development of the average number of bidders, construction activity and backlog. Notes: 12-period trailing moving averages; backlog is calculated as in Jofre-Bonet and Pesendorfer (2003) based on the estimation sample, as is the number of firms; flow of orders in construction sector and in public procurement from Statistik Austria.

Mentions: In the crisis demand shrinks, capacity constraints are relaxed, and (roughly) the same number of bidders bid in fewer auctions, implying an increase in the number of bidders per auction. Thus, due to this competition effect, bidders bid more closely to their true costs in the crisis. Fig. 3 shows a striking negative relationship between the number of bidders per auction and the new orders series in the construction sector (both public and private contracts).19 While new orders in the construction sector sharply decrease due to the crisis, the number of bidders per auction sharply increases. New orders in public procurement (also in Fig. 3), however, are larger in the last few months of 2009. Accordingly, our backlog measure — after dropping sharply in 2008 — begins to rise again in early 2009.20 We attribute this to the growing inflow of stimulus projects.


Competition in the economic crisis: Analysis of procurement auctions.

Gugler K, Weichselbaumer M, Zulehner C - Eur Econ Rev (2015)

Development of the average number of bidders, construction activity and backlog. Notes: 12-period trailing moving averages; backlog is calculated as in Jofre-Bonet and Pesendorfer (2003) based on the estimation sample, as is the number of firms; flow of orders in construction sector and in public procurement from Statistik Austria.
© Copyright Policy - CC BY
Related In: Results  -  Collection

License
Show All Figures
getmorefigures.php?uid=PMC4318169&req=5

f0015: Development of the average number of bidders, construction activity and backlog. Notes: 12-period trailing moving averages; backlog is calculated as in Jofre-Bonet and Pesendorfer (2003) based on the estimation sample, as is the number of firms; flow of orders in construction sector and in public procurement from Statistik Austria.
Mentions: In the crisis demand shrinks, capacity constraints are relaxed, and (roughly) the same number of bidders bid in fewer auctions, implying an increase in the number of bidders per auction. Thus, due to this competition effect, bidders bid more closely to their true costs in the crisis. Fig. 3 shows a striking negative relationship between the number of bidders per auction and the new orders series in the construction sector (both public and private contracts).19 While new orders in the construction sector sharply decrease due to the crisis, the number of bidders per auction sharply increases. New orders in public procurement (also in Fig. 3), however, are larger in the last few months of 2009. Accordingly, our backlog measure — after dropping sharply in 2008 — begins to rise again in early 2009.20 We attribute this to the growing inflow of stimulus projects.

Bottom Line: We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions.We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points.We also find that without the government stimulus package this decrease would have been larger.

View Article: PubMed Central - PubMed

Affiliation: Vienna University of Economics and Business, Welthandelsplatz 1, A-1020 Vienna, Austria.

ABSTRACT

We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions. Using data from Austrian construction procurements, we estimate bidders׳ construction costs within a private value auction model. We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points. We also find that without the government stimulus package this decrease would have been larger. These two pieces of evidence point to pro-cyclical markups.

No MeSH data available.