An Empirical Study of Competition and Bidding Behaviors of Small and Large Firms in Public Procurement

Abstract: The number of firms participating in public procurement in Sweden has declined since 2012, worrying policymakers since competition is seen as a driver of value-for-money. However, previous research suggests that efforts to increase participation in procurement do not necessarily result in a desirable, competitive effect, due to the auction format of the practice. Using a novel dataset of manually collected observations of bid prices placed in procurements, this thesis empirically studies the effects of increased competition on public procurement in the Swedish setting. Efforts currently in place aimed at increasing participation predominantly target smaller companies, therefore, the bidding behavior of these firms in comparison to their larger counterparts is investigated. We find that more competition results in relatively lower bid prices, moreover, that the participation of smaller firms contributes to a larger reduction in prices. This could in part be due to their more erratic bidding behavior in general, however, there are fragments of evidence suggesting small firms practice more aggressive bidding than large firms on average.