THE NUMBER OF BIDDERS, CONCENTRATION RATIOS AND MARKETS IN THE HIGHWAY CONSTRUCTION INDUSTRY

Though the highway construction industry has received little attention among economists, the wide range of competitive situations, the non-competitive in particular as evidenced by recent prosecutions of bid-riggers in several states, is attractive for examining factors hypothesized to explain the level of competition. Also, the nature of the industry suggests that neither the multitude of defined job types nor the geographic areas (e.g., state, highway districts) used by highway departments accurately define the product and geographic markets, respectively. An accurate market definition is particularly important in calculating and analyzing any effects of concentration.;The results show that the number of bidders has an important direct relationship with the level of competition, confirming the results of theoretical bidding models. Although use of the actual number of bidders implies a different analysis than use of the anticipated number of bidders, the results from the two estimations show similar results. This implies that firms, perhaps due in some measure to the highway department's contract letting procedures, have enough information to know, or predict with uncanny accuracy, the number of bidders before bids are opened.;Additional results show that, for some products, the level of market concentration has a significant negative relationship with the level of competition which supports the arguments advanced by Bain, Scherer et al. that higher concentration results in less competition.;Concentration and the number of bidders, either actual or anticipated, as well as other factors are hypothesized in this study to explain the level of competition in the highway construction industry. The analysis is done in an ex ante framework and in the context of markets defined by techniques developed in this study and in the literature. For comparison, both the actual and anticipated number of bidders are examined although theoretically, it is the anticipated number of bidders that is appropriate. Two techniques to estimate the anticipated number of bidders (an unobservable variable), a two-step procedure and a generalized least squares approach, are employed and compared.