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Sourcing from the Enemy: Horizontal Subcontracting in Highway Procurement
Author(s) -
Marion Justin
Publication year - 2015
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12065
Subject(s) - bidding , business , industrial organization , procurement , horizontal and vertical , reverse auction , proxy bid , bid shading , common value auction , microeconomics , eauction , unique bid auction , economics , marketing , auction theory , geodesy , geography
I empirically consider the effect of horizontal subcontracting on firm bidding strategies in C alifornia highway construction auctions. Subcontractors are hired by prime contractors prior to the auction, and the subcontractor may also be a competitor in the primary auction. While horizontal subcontracting may improve productive efficiency, it softens the horizontal subcontractor's bid strategy, since winning the auction may entail losing subcontracting business. I find that while each additional competitor supplied by the firm is estimated to increase its bid by 1.4 per cent, the winning bid is uncorrelated with horizontal subcontracting. This points toward an efficiency motive for cross‐supply.