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Market Competition and the design of tendering procedures

Market Competition and the design of tendering procedures . STSM of Fabio Sciancalepore at University of the Aegean Fabio Sciancalepore , Politecnico di Bari Athena Roumboutsos , University of the Aegean Nunzia Carbonara , Politecnico di Bari. Research Question. Common Q:

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Market Competition and the design of tendering procedures

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  1. Market Competition and the design of tendering procedures STSM of Fabio Sciancalepore at University of the Aegean Fabio Sciancalepore,Politecnicodi Bari Athena Roumboutsos, University of the Aegean NunziaCarbonara, Politecnicodi Bari

  2. Research Question Common Q: How to design a tendering procedure which will improve competition in the market? or How to call in more and “improved” offers? New Approach Q: How to exploit all existing competition in the market through the tendering procedure ? or The number of bidders in a particular market situation is given. How to a design the bidding process to suit this number?

  3. Overview Purpose: To develop a “tool” to identify the optimum value tendering procedure, stemming from the existing level of competition in a PPP market. Approach:Analytical models, initially proposed by McAfee & McMillan, are further investigated with respect to the various tendering procedures, by recalling the dynamics of transaction costs for competitors in PPP market.

  4. Problem parameters • k: the transaction cost • Sector/subsector • Country • Project complexity • Project size • Tendering Process • Proxy time

  5. Bidding Equilibrium Models with Transaction Costs Where πi= profit for the i-th bidder θi= production cost for the i-th bidder k = transaction cost F(θ) = cumulative density probability function Production cost function Lowest Price

  6. Bidding Equilibrium Models with Transaction Costs Where πi= profit for the i-th bidder C(qi, θi )= production cost for the i-th bidder k = transaction cost F(θ) = cumulative density probability function Production cost function Major Assumption: V(q) = q½ (conservative approach) Lowest Price with Quality Threshold

  7. Tender Process Guidance Tool Unrealistic Market High Transaction Costs & Many Bidder Lowest Price Competitive Market Quality Threshold Uncompetitive Market

  8. Discussion A competitive market is achieved (practically for all ks) with a small number of bidders and quality criteria Minimizing tender transaction costs (k) produces surplus for the bidders in the market A surplus supports further market concentration Contracting authority needs to request “more” to compensate for “surplus”

  9. Future Research • Investigate further the “quality criterion” equilibrium • V(q) = q • V(q) = q2 • Estimations of k: • Sector/ Subsector specific • Country specific • Function of time, t

  10. Thank you! Athena Fabio and Nunzia

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