Asymmetry in Procurement Auctions: Evidence from Snow Removal Contracts

Abstract

Differences in cost efficiency and productivity across firms may introduce asymmetries in procurement auctions. Relying on a structural approach, this article investigates potential asymmetry among firms bidding for snow removal contracts in Montréal. The empirical results show that firms located in close proximity have a cost advantage relative to other firms in the most urbanised part of Montréal because of prohibitive equipment storage costs. The extent of inefficiency due to asymmetry is empirically assessed. Various policy experiments are performed. A bidding preference policy shows that the city could expect to reduce its costs for allocating snow removal contracts.