Causes and Consequences of Low Competition in Russian Public Procurement

Abstract

It is believed that the price efficiency of public procurement depends on the number of bidders in competitive tender procedure. The more firms participate in the auction, the higher is the competition for the contract, and the higher is the probability that the winning firm will be efficient, i.e. will be able to sell the desired quantity of required goods with the lowest costs. In Russia the level of competition in public procurement remains very low. In this paper we try to find out, what are the factors that limit the competition for the public contracts, and analyze whether the low competition in the gasoline market leads to poor results of the public procurement procedures. Using the data on public procurement of gasoline in five Russian regions in 2011-2013, we show that number of bidders in a procedure depends on the clauses of the procurement, which are determined by a procurer, while price of the procurement depends in its turn on the number of bidders. We may conclude that clauses of the procurement and characteristics of the market structure may limit the competition for the contract and result in higher relative prices of the public contracts. It means that, ceteris paribus, preventing procurers from limiting the potential number of bidders, especially when market competition is already rather low, together with creating incentives for sellers to participate in public procurement, may lead to more efficient public procurement of goods with standard and verifiable quality.