Competition and efficiency in procurement auctions: evidence from a million Brazilian auctions

We present evidence demonstrating that the impact of competitiveness on the efficiency of government procurement auctions is non-linear. An analysis of data encompassing 1,366,002 procurement auctions in Brazil from 2015 to 2018 reveals a correlation linking both the number of participants in an auction and the number of bids with increased efficiency in procuring items (that is, lower prices compared to the estimated price of the item). However, the contribution of this article lies in the interaction between these two variables. Our results show that the marginal effect of one extra bid on efficiency increases with one extra participant. We also find that this effect is driven by an increased average difference between bids. Furthermore, we highlight that this non-linear effect is more pronounced in larger and more specialized firms (those winning the most auctions and those with larger contributed capital), as well as firms located in the same state as the government unit. Lastly, we note that this non-linearity in efficiency is uniformly distributed across the various products procured by the federal government of Brazil.