STRATEGIC BIDDING AND CONTRACT RENEGOTIATION

Hojin Jung; Georgia Kosmopoulou; Carlos Lamarche; Richard Sicotte

doi:10.1111/iere.12368

STRATEGIC BIDDING AND CONTRACT RENEGOTIATION

Hojin Jung, Georgia Kosmopoulou, Carlos Lamarche, Richard Sicotte

Research output: Contribution to journal › Article › peer-review

9 Scopus citations

Abstract

When firms bid in procurement auctions, they take into account the likelihood of future contract renegotiations. If they anticipate that certain input quantities will change ex post, they have an incentive to strategically skew their itemized bids, thereby increasing profits for themselves and costs for the procuring agency. We develop and estimate a structural model of strategic bidding using a data set of road construction projects in Vermont. We find that bidding strategies lead to increased markups for renegotiated items and reduced markups for nonrenegotiated items, results consistent with bid-skewing.

Original language	English
Pages (from-to)	801-820
Number of pages	20
Journal	International Economic Review
Volume	60
Issue number	2
DOIs	https://doi.org/10.1111/iere.12368
State	Published - May 2019

Bibliographical note

Publisher Copyright:
© (2018) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

ASJC Scopus subject areas

Economics and Econometrics

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10.1111/iere.12368

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title = "STRATEGIC BIDDING AND CONTRACT RENEGOTIATION",

abstract = "When firms bid in procurement auctions, they take into account the likelihood of future contract renegotiations. If they anticipate that certain input quantities will change ex post, they have an incentive to strategically skew their itemized bids, thereby increasing profits for themselves and costs for the procuring agency. We develop and estimate a structural model of strategic bidding using a data set of road construction projects in Vermont. We find that bidding strategies lead to increased markups for renegotiated items and reduced markups for nonrenegotiated items, results consistent with bid-skewing.",

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AU - Kosmopoulou, Georgia

AU - Lamarche, Carlos

AU - Sicotte, Richard

N1 - Publisher Copyright: © (2018) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

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N2 - When firms bid in procurement auctions, they take into account the likelihood of future contract renegotiations. If they anticipate that certain input quantities will change ex post, they have an incentive to strategically skew their itemized bids, thereby increasing profits for themselves and costs for the procuring agency. We develop and estimate a structural model of strategic bidding using a data set of road construction projects in Vermont. We find that bidding strategies lead to increased markups for renegotiated items and reduced markups for nonrenegotiated items, results consistent with bid-skewing.

AB - When firms bid in procurement auctions, they take into account the likelihood of future contract renegotiations. If they anticipate that certain input quantities will change ex post, they have an incentive to strategically skew their itemized bids, thereby increasing profits for themselves and costs for the procuring agency. We develop and estimate a structural model of strategic bidding using a data set of road construction projects in Vermont. We find that bidding strategies lead to increased markups for renegotiated items and reduced markups for nonrenegotiated items, results consistent with bid-skewing.

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STRATEGIC BIDDING AND CONTRACT RENEGOTIATION

Abstract

Bibliographical note

ASJC Scopus subject areas

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