On the Competitive Effects of Screening in Procurement

Abstract

This study estimates the effect of screening and litigation using a unique data set on highway construction procurement auctions in Poland. Procurement authorities frequently use screening to mitigate default risk. However, eliminating bidders reduces competition and may discourage entry. The examined market exhibits a screening method that ex-post selects eligible offers. We demonstrate with a reduced-form model that this method disproportionately affects small firms and decreases entry, indirectly inflating bids and prices as a consequence.