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Bidder asymmetries in procurement auctions: Efficiency vs. information – Evidence from railway passenger services

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  • Carnehl, Christoph
  • Weiergraeber, Stefan

Abstract

We estimate a structural model of procurement auctions with private and common value components and asymmetric bidders using detailed contract-level data on the German market for railway passenger services. Exploiting exogenous variation in the procurement design, we disentangle the asymmetries in private costs from asymmetries in information about the common value. While each asymmetry can rationalize a firm’s dominance, understanding its source is crucial for evaluating the auction design as welfare and revenue implications depend on the source of dominance. Our results indicate that the incumbent is slightly more cost-efficient and has substantially more precise information about the common value component. If the bidders’ strategic response to the common value asymmetry were eliminated, the average probability of selecting the efficient firm would increase by 43%-points.

Suggested Citation

  • Carnehl, Christoph & Weiergraeber, Stefan, 2023. "Bidder asymmetries in procurement auctions: Efficiency vs. information – Evidence from railway passenger services," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:indorg:v:87:y:2023:i:c:s0167718722000777
    DOI: 10.1016/j.ijindorg.2022.102902
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    More about this item

    Keywords

    Procurement with asymmetric bidders; Incumbency advantages; Structural estimation of auctions; Railway passenger services;
    All these keywords.

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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