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PRICE ADJUSTMENT POLICIES AND FIRM SIZE
Author(s) -
Kosmopoulou Georgia,
Lamarche Carlos,
Zhou Xueqi
Publication year - 2016
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12286
Subject(s) - economics , government procurement , offset (computer science) , competition (biology) , procurement , microeconomics , monetary economics , ecology , management , computer science , biology , programming language
A number of U.S. State Departments of Transportation have adopted a price adjustment policy designed to limit cost fluctuations of oil‐based inputs in government procurement. Similar policies are common in defense contracting, and have been used to offset financial losses of health insurance companies in Medicare and the Affordable Care Act. We show that while all bidders submit lower bids after the policy is introduced, the extent of bid reduction diminishes with firm size. Small new firms are able to compete more frequently, promoting auction competition and efficiency. ( JEL H4, H57, D44)