Price adjustment policies and firm size

Georgia Kosmopoulou, Carlos Lamarche, Xueqi Zhou

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


A number of U.S. State Departments of Transportation have adopted a price adjustment policy designed to limit cost fluctuations of oil-based inputs in government procurement. Similar policies are common in defense contracting, and have been used to offset financial losses of health insurance companies in Medicare and the Affordable Care Act. We show that while all bidders submit lower bids after the policy is introduced, the extent of bid reduction diminishes with firm size. Small new firms are able to compete more frequently, promoting auction competition and efficiency.

Original languageEnglish
Pages (from-to)895-906
Number of pages12
JournalEconomic Inquiry
Issue number2
StatePublished - Apr 1 2016

Bibliographical note

Publisher Copyright:
© 2016 Western Economic Association International.

ASJC Scopus subject areas

  • General Business, Management and Accounting
  • Economics and Econometrics


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