Procuring authorities frequently use screening in order to mitigate risky bids. This study estimates the effect of bid screening and litigation on entry and bidding using a unique data set on highway construction procurement auctions in Poland. The market exhibits a screening method that ex post selects eligible offers. We demonstrate with an empirical model that this method disproportionately affects small firms and creates a barrier to entry. Our results suggest that screening increases bids by two channels. First, it directly inflates bids as well as decreasing entry. Second, in a competitive market, lower entry also inflates bids and prices.
We are grateful to Estelle Cantillon, Olga Chiappinelli, Francesco Decarolis, Reto Föllmi, Dakshina De Silva, Nicola Dimitri, Elisabetta Iossa, Winfried Koeniger, Georgia Kosmopoulou, Daniel Marszalec, Vlada Pleshcheva, Almuth Scholl, Arthur van Soest, Giancarlo Spagnolo, and participants of ERAIE 2018, TiLEC Seminar, University of Groningen Economics Seminar, BCCP Forum, DIW Industrial Economics Seminar, WIEM 2018, Joint Economic PhD Seminar in Konstanz, and PhD Seminar in St.Gallen for their valuable comments. We would like to thank Przemysław Rzeźniewski for his detailed comments on GDDKiA procurement procedures and abundant anecdotal evidence on them. We thank Tadeusz Śmietanka for comments on the Polish construction industry.
