The Effect Of Information On The Bidding And Survival Of Entrants In Procurement Auctions

In government procurement auctions of construction contracts, entrants are typically less informed and bid more aggressively than incumbent firms. This bidding behavior makes them more susceptible to losses affecting their prospect of survival. In April of 2000, the Oklahoma Department of Transportation started releasing the internal cost estimates to complete highway construction projects. Using newly developed quantile regression approaches, this paper examines the impact of the policy change on aggressive entrants. First, the authors find that the information release eliminates the bidding differential between entrants and incumbents attributed to informational asymmetries. Second, they argue that the policy change affects the prospects of survival of entrants in the market.