A0542
Title: Ohio rock salt procurement auctions, bid preferences, and competition
Authors: Nayul Kim - Korea Institute of Finance (Korea, South) [presenting]
Matthew Weinberg - The Ohio State University (United States)
Abstract: The design of procurement auctions is studied for rock salt, county level bidding data, and antitrust complaints in Ohio from 2002-2021. Bidding behavior is compared before and after the removal of a policy that favored local firms and was alleged to have facilitated collusion. Specifically, the policy only awarded contracts to the two firms with exclusive access to salt mined in Ohio if both entered an auction. A difference in differences estimates that this policy raised winning bids by 12\%. Evidence is provided that the policy facilitated collusion and thus increased procurement costs beyond what would be expected under competition. While the policy was in place, firms that barely won contracts were 43 percentage points more likely to be incumbent than firms that nearly won contracts. This discontinuity disappeared after the policy was removed, suggesting that local firms were able to collude by dividing county markets. The impact on procurement costs is quantified by comparing observed bids under the policy with simulated bids under competition conditional on auction heterogeneity. Favoring local firms raised procurement costs above competitive levels conditional on market structure by 5.5\%. Costs under competitive bidding would have been at least 6.5\% lower after accounting for competition from firms without access to local inputs.
