Competition in the economic crisis: Analysis of procurement auctions

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...

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Bibliographic Details
Published in:	European economic review 2015-01, Vol.73, p.35-57
Main Authors:	Gugler, Klaus, Weichselbaumer, Michael, Zulehner, Christine
Format:	Article
Language:	eng
Subjects:	Auctions Austria Bidding Competition Construction costs Construction procurement Construction spending Economic crisis Economic models Economic theory Evidence First-price auctions Government stimulus Markups Private values Procurement Studies Western Europe
Online Access:	Get full text
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Summary:	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. •We study the effects of the recent economic crisis on firms׳ bidding behavior and markups in sealed bid auctions.•Backlogs fall and competition rises in procurement auctions during economic crisis.•Firms׳ estimated markups reduce by 1.5, winning bids by 3.3 percentage points.•Counterfactuals show that the major part of the fall in markups comes from backlog and competition.•Without the government stimulus package, the decrease in markups would have been larger.
ISSN:	0014-2921 1873-572X