AN EMPIRICAL ANALYSIS OF ENTRANT AND
INCUMBENT BIDDING IN ROAD CONSTRUCTION
DakshinaG. De Silva
and Georgia Kosmopoulou
This paper explores differences in the bidding patterns of entrants and
incumbents in road construction auctions. We ±nd that entrants bid
more aggressively and win auctions with signi±cantly lower bids than
incumbents. The differences in their bidding patterns are consistent with
a model of auctions in which the distribution of an entrant’s costs
exhibits greater dispersion than that of an incumbent’s and relations of
stochastic dominance in the distributions do not persist for the entire
range of estimated costs. We also ±nd that more ef±cient ±rms bid, on
average, more aggressively and ±rms with greater backlogs bid less
HIS PAPER COMPARES
the bidding patterns of entrant and incumbent ±rms in
road construction auctions that took place between January of 1997 and
August of 2000 in the state of Oklahoma. In any market, entrants or the
threat of entry should act to increase competition. The bene±ts of
competition can be even greater in procurement auctions where in practice
there is a considerable history of collusion.
Larger participation can reduce
substantially the returns of any bidding ring. However, entering ±rms may
be at a signi±cant disadvantage relative to incumbents in these auctions.
Entrants may face higher uncertainty in the development of a bid, since they
lack bidding and production experience. They may also have access to less
information than incumbent bidders regarding the pricing and cost of
various bid components. On the other hand, incumbents facing entrants
may be faced with a potential bidder they know little about, and hence, their
bidding may be inﬂuenced by the presence of entrants. Such asymmetries
have not been emphasized in the auction literature.
Blackwell Publishing Ltd. 2003, 9600 Garsington Road, Oxford OX4 2DQ, UK, and 350 Main Street, Malden, MA 02148, USA.
THE JOURNAL OF INDUSTRIAL ECONOMICS
The authors wish to thank George Deltas, two anonymous referees, the editor and the
participants of the seminar series of the University of Missouri-Columbia for providing useful
comments. We are indebted to Brad Hartronft for providing us with useful information about
Authors’ af±liations: Department of Economics, Texas Tech University, Lubbock, TX
Department of Economics, University of Oklahoma, Norman, OK 73019-2103, USA.
See, for example, the work byPorter andZona ,Bajari [2001 andBajari andYe [2001,
2002] for analyses of bid-rigging and collusive behavior in procurement auctions.