STRATEGIC BIDDING AND CONTRACT RENEGOTIATION. (7th November 2018)

• Record Type: Journal Article
• Authors: Jung, Hojin; Kosmopoulou, Georgia; Lamarche, Carlos; Sicotte, Richard
• Is Part Of: International economic review. Volume 60:Number 2(2019)
• Page Start: 801
• Page End: 820
• Publication Date: 2018-11-07
• Subjects: Economics -- Periodicals; 330.05
• DOI: 10.1111/iere.12368
• Languages: English
• ISSNs: 0020-6598

Abstract

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.