Do firms submit fewer tender bids with high inflation? An analysis of firms’ participation in public procurement in the EU

Purpose - This paper aims to explore the effect of sustained high inflation on public procurement participation in the European Union, both in terms of the average number of bids submitted and in the proportion of bids by small- and medium-sized enterprises (SMEs) out of all submitted bids. Design/methodology/approach - Regression modelling, using contract award notices in the Tender Electronics Daily database between 2018 and 2022, at quarterly intervals. Findings - Each inflation point increase is associated with a decline in the average number of offers received per tender by 0.43%. A more marked reduction of 8.6% in the average number of offers and a decrease in 3.4 percentage points in the SME participation rate are observed for firms operating in sectors that experienced very high levels of inflation (>20% year-on-year rate of change), compared with a situation of low inflation (0–5%). Social implications - Claims about difficulties in delivering public contracts for the set price should be taken with a grain of salt, unless businesses operate in sectors experiencing very high inflation levels. Measures to foster competition could also reduce price pressures. Originality/value - To the best of the authors’ knowledge, this is the first study to quantitatively assess the association between high inflation and public procurement participation. Two methodological novelties are introduced: the operationalisation of sectoral-level inflation down to two-digit NACE codes, based mainly on producer prices; and a matching between two-digit NACE codes for inflation and the common procurement vocabulary codes to classify calls to bid for public contracts by economic activity.