STRATEGIC BIDDING AND CONTRACT RENEGOTIATION
- 23 September 2018
- journal article
- research article
- Published by Wiley in International Economic Review
- Vol. 60 (2) , 801-820
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.Keywords
Funding Information
- VTrans (SPR722)
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