IDEAS home Printed from https://ideas.repec.org/a/kap/jincot/v19y2019i2d10.1007_s10842-018-0285-4.html
   My bibliography  Save this article

The Construction Industry and (Dis)Economies of Scope: Empirical Research in the Hokkaido Procurement Auction

Author

Listed:
  • Koki Arai

    (Shumei University)

  • Emi Morimoto

    (The University of Tokushima)

Abstract

This paper explores the presence, causes, and effects of economies of scope in the construction industry. Based on public procurement data of the Hokkaido Regional Development Bureau from fiscal years 2006 to 2012, it is clear that the cost efficiency of bid and win rates are regressed by different factors, including the number of segments in public procurement in which a construction business operates. We found that the bid rates of diversified firms are higher than those of specialised firms. Therefore, the probability of a firm to win a bid decreases as their number of operational segments increases. Diseconomies of scope in the construction industry stem from the degree of specialisation of each segmentation, which is tested in this study by a regression analysis between the average bid rate of each business and the number of bids. The results show that costs are reduced for jobs that receive many bids, especially from firms participating in few segments.

Suggested Citation

  • Koki Arai & Emi Morimoto, 2019. "The Construction Industry and (Dis)Economies of Scope: Empirical Research in the Hokkaido Procurement Auction," Journal of Industry, Competition and Trade, Springer, vol. 19(2), pages 281-292, June.
    • Handle: RePEc:kap:jincot:v:19:y:2019:i:2:d:10.1007_s10842-018-0285-4
    DOI: 10.1007/s10842-018-0285-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10842-018-0285-4
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10842-018-0285-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Pires Cesaltina Pacheco & Catalão-Lopes Margarida, 2013. "Economies of Scope, Entry Deterrence and Welfare," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 419-452, June.
    2. Han Hong & Matthew Shum, 2002. "Increasing Competition and the Winner's Curse: Evidence from Procurement," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 871-898.
    3. Panzar, John C & Willig, Robert D, 1981. "Economies of Scope," American Economic Review, American Economic Association, vol. 71(2), pages 268-272, May.
    4. Nakabayashi, Jun, 2013. "Small business set-asides in procurement auctions: An empirical analysis," Journal of Public Economics, Elsevier, vol. 100(C), pages 28-44.
    5. Russell Pittman, 2003. "Vertical Restructuring (or Not) of the Infrastructure Sectors of Transition Economies," Journal of Industry, Competition and Trade, Springer, vol. 3(1), pages 5-26, March.
    6. Alistair Gibb, 2001. "Standardization and pre-assembly- distinguishing myth from reality using case study research," Construction Management and Economics, Taylor & Francis Journals, vol. 19(3), pages 307-315.
    7. Alon Eizenberg, 2014. "Upstream Innovation and Product Variety in the U.S. Home PC Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(3), pages 1003-1045.
    8. Elena Krasnokutskaya & Katja Seim, 2011. "Bid Preference Programs and Participation in Highway Procurement Auctions," American Economic Review, American Economic Association, vol. 101(6), pages 2653-2686, October.
    9. John C. Panzar & Robert D. Willig, 1977. "Free Entry and the Sustainability of Natural Monopoly," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 1-22, Spring.
    10. Carol Jewell & Roger Flanagan & Weisheng Lu, 2014. "The dilemma of scope and scale for construction professional service firms," Construction Management and Economics, Taylor & Francis Journals, vol. 32(5), pages 473-486, May.
    11. Le, Vo Phuong Mai & Minford, Patrick & Nowell, Eric, 2009. "Economic Policy: protectionism as an elite strategy," Cardiff Economics Working Papers E2009/1, Cardiff University, Cardiff Business School, Economics Section.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tomáš Hanák & Ivan Marović & Nikša Jajac, 2020. "Challenges of Electronic Reverse Auctions in Construction Industry—A Review," Economies, MDPI, vol. 8(1), pages 1-14, February.
    2. Koki Arai, 2021. "The Characteristics of Low Bid Price Survey Standards and Their Impact," Journal of Industry, Competition and Trade, Springer, vol. 21(4), pages 593-608, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Matilde Cappelletti & Leonardo M. Giuffrida, 2024. "Targeted Bidders in Government Tenders," CESifo Working Paper Series 11142, CESifo.
    2. Giovanni Compiani & Philip Haile & Marcelo Sant’Anna, 2020. "Common Values, Unobserved Heterogeneity, and Endogenous Entry in US Offshore Oil Lease Auctions," Journal of Political Economy, University of Chicago Press, vol. 128(10), pages 3872-3912.
    3. Bernhardt, Dan & Liu, Tingjun & Sogo, Takeharu, 2020. "Costly auction entry, royalty payments, and the optimality of asymmetric designs," Journal of Economic Theory, Elsevier, vol. 188(C).
    4. Andres Gonzalez-Lira & Michael S. Walker & Rodrigo Carril, 2022. "Competition under Incomplete Contracts and the Design of Procurement Policies," Working Papers 1327, Barcelona School of Economics.
    5. José Alcalde & Matthias Dahm, "undated". "Supplier Diversity before the Time of Cholera," Discussion Papers in Economics 20/07, Division of Economics, School of Business, University of Leicester.
    6. Marleen Marra, 2024. "Estimating and Auction Platform Game with Two-Sided Entry," Working Papers hal-03393068, HAL.
    7. Nicholas Ryan, 2020. "Holding Up Green Energy," Cowles Foundation Discussion Papers 2294, Cowles Foundation for Research in Economics, Yale University.
    8. repec:spo:wpecon:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb is not listed on IDEAS
    9. repec:hal:spmain:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb is not listed on IDEAS
    10. Vivek Bhattacharya & James W. Roberts & Andrew Sweeting, 2014. "Regulating bidder participation in auctions," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 675-704, December.
    11. Marmer, Vadim & Shneyerov, Artyom & Xu, Pai, 2013. "What model for entry in first-price auctions? A nonparametric approach," Journal of Econometrics, Elsevier, vol. 176(1), pages 46-58.
    12. Paulo R. C. Reis & Sandro Cabral, 2015. "Public procurement strategy: the impacts of a preference programme for small and micro businesses," Public Money & Management, Taylor & Francis Journals, vol. 35(2), pages 103-110, March.
    13. Hoekman, Bernard & Onur Taş, Bedri Kamil, 2024. "Discretion and public procurement outcomes in Europe," European Journal of Political Economy, Elsevier, vol. 82(C).
    14. Sweeting, Andrew & Bhattacharya, Vivek, 2015. "Selective entry and auction design," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 189-207.
    15. Martin Hon, 2008. "Historie konceptu přirozeného monopolu [History of natural monopoly concept]," Politická ekonomie, Prague University of Economics and Business, vol. 2008(6), pages 833-842.
    16. Philippe Jehiel & Laurent Lamy, 2020. "On the Benefits of Set-Asides," Journal of the European Economic Association, European Economic Association, vol. 18(4), pages 1655-1696.
    17. Fang, Hanming & Tang, Xun, 2014. "Inference of bidders’ risk attitudes in ascending auctions with endogenous entry," Journal of Econometrics, Elsevier, vol. 180(2), pages 198-216.
    18. Vigren, Andreas, 2018. "How many want to drive the bus? Analyzing the number of bids for public transport bus contracts," Transport Policy, Elsevier, vol. 72(C), pages 138-147.
    19. Alcalde, José & Dahm, Matthias, 2024. "On the trade-off between supplier diversity and cost-effective procurement," Journal of Economic Behavior & Organization, Elsevier, vol. 217(C), pages 63-90.
    20. Hanming Fang & Xun Tang, 2013. "Inference of Bidders’ Risk Attitudes in Ascending Auctions with Endogenous Entry," PIER Working Paper Archive 13-056, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    21. Bedri Kamil Onur Tas, 2020. "Effect of public procurement regulation on competition and cost-effectiveness," Journal of Regulatory Economics, Springer, vol. 58(1), pages 59-77, August.
    22. Stefan Baumgartner, 2001. "Heinrich von Stackelberg on joint production," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 8(4), pages 509-525.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jincot:v:19:y:2019:i:2:d:10.1007_s10842-018-0285-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.