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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.


Difference between crisis and pre-crisis sample split, all bids. Notes: difference of mean markups before and after a specific month (black line). Dotted lines mark the upper and lower limit of the 95% confidence interval of a t-test. Shaded area potential start of the crises.
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f0030: Difference between crisis and pre-crisis sample split, all bids. Notes: difference of mean markups before and after a specific month (black line). Dotted lines mark the upper and lower limit of the 95% confidence interval of a t-test. Shaded area potential start of the crises.

Mentions: From our structural estimates we proceed with the calculation of the markup for each bid.31 With the calculated markups, we test the first hypothesis on the effects of the economic crisis on markups, i.e., that markups go down in an economic crisis. To obtain our results, we are interested in the mean difference of markups between before the crisis started and afterwards. As has been shown in Fig. 2, new orders and stock of contracts start downward developments in April 2008 and October 2008. If we split the sample in April 2008, the difference between before April 2008 and after April 2008 in mean markups is −0.6 percentage points; if we split the sample in October 2008, the difference reaches significant −1.5 percentage points. The shaded area in Fig. 6 displays these differences on the black line at the left border of the shaded area (April 2008) and right border of the shaded area (October 2008). We further show those values when we split the sample at any arbitrary point in time between April 2006 and October 2009. Note that the sample size is constant at n=14,845, but the subsample of the first part — the pre-crisis period — shrinks when we move the crisis start date to earlier months and the subsample of the second part — the crisis period — grows accordingly. The black line gives the difference of mean markups before and after a specific month. The dotted lines above and below the black line show the upper and lower limit of the 95% confidence interval and indicate whether the difference is significant. Reassuringly, the graph of markup differences displays a downward trend indicating that the crisis truly reduced markups.


Competition in the economic crisis: Analysis of procurement auctions.

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

Difference between crisis and pre-crisis sample split, all bids. Notes: difference of mean markups before and after a specific month (black line). Dotted lines mark the upper and lower limit of the 95% confidence interval of a t-test. Shaded area potential start of the crises.
© Copyright Policy - CC BY
Related In: Results  -  Collection

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

f0030: Difference between crisis and pre-crisis sample split, all bids. Notes: difference of mean markups before and after a specific month (black line). Dotted lines mark the upper and lower limit of the 95% confidence interval of a t-test. Shaded area potential start of the crises.
Mentions: From our structural estimates we proceed with the calculation of the markup for each bid.31 With the calculated markups, we test the first hypothesis on the effects of the economic crisis on markups, i.e., that markups go down in an economic crisis. To obtain our results, we are interested in the mean difference of markups between before the crisis started and afterwards. As has been shown in Fig. 2, new orders and stock of contracts start downward developments in April 2008 and October 2008. If we split the sample in April 2008, the difference between before April 2008 and after April 2008 in mean markups is −0.6 percentage points; if we split the sample in October 2008, the difference reaches significant −1.5 percentage points. The shaded area in Fig. 6 displays these differences on the black line at the left border of the shaded area (April 2008) and right border of the shaded area (October 2008). We further show those values when we split the sample at any arbitrary point in time between April 2006 and October 2009. Note that the sample size is constant at n=14,845, but the subsample of the first part — the pre-crisis period — shrinks when we move the crisis start date to earlier months and the subsample of the second part — the crisis period — grows accordingly. The black line gives the difference of mean markups before and after a specific month. The dotted lines above and below the black line show the upper and lower limit of the 95% confidence interval and indicate whether the difference is significant. Reassuringly, the graph of markup differences displays a downward trend indicating that the crisis truly reduced markups.

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.