This paper empirically investigates the effect of the competitive environment (number of participants) on the cost of procurement. We use a unique dataset provided by the Public Procurement Authority (PPA) of Turkey that covers all of the government procurement auctions for the years 2004-2006. First, after controlling for possible endogeneity, we show that the number of bidders significantly and negatively affects the procurement price. Thus, the existence of a more competitive environment significantly decreases procurement costs in Turkey. Second, when auctions are open to foreign participation, the auction price tends to be lower. Finally, prices in services and goods sectors are more sensitive to changes in the number of bidders than is true for the construction sector. The results of this paper have several policy implications for e-procurement and efficient procurement design.
- Competition effects
- Public procurement auctions