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Competition in the Economic Crisis: Analysis of Procurement Auctions

European Economic Review, Vol. 73, pp.35-57

Authors:
Klaus Gugler,
Michael Weichselbaumer,
Christine Zulehner
Research Area:
Law and Finance
Date:
Jan 2015
Keywords:
Construction procurement, First-price auctions, Private values, Economic crisis, Government stimulus
Abstract:

We study the effects of the recent economic crisis on firms´ bidding behavior and markups in sealed bid auctions. Using data from Austrian construction procurements, we estimate bidders´construction costs within a private value auction model. We find that markups of all bids submitted decrease by 1.5 percentage points in the recent economic crisis, markups of winning bids decrease by 3.3 percentage points. We also find that without the government stimulus package this decrease would have been larger. These two pieces of evidence point to pro-cyclical markups.

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