IPPC6

1. Efficiency of simple homogeneous goods
procurement under rigid governmental
regulation: the case of sugar sand
procurement in Russia
A. Yakovlev, A. Bashina, O. Demidova
6th IPPC, Dublin
14th August

2. 6th IPPC, Dublin, 14th August
Motivation
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 Wide spread of e-auctions as a public procurement procedure
(since 2011 e-auctions are one of the most popular procurement
practices). But are they efficient or not?
 Previous research shows that different procedures can give
different results for simple and complex procurements (Jean
Tirole “The Theory of Industrial Organization”, 1988).
The goal of our research:
 To estimate price efficiency of different procurement procedures
using data for sugar sand procurement as an example of simple
homogeneous good.

3. 6th IPPC, Dublin, 14th August
Procurement System in Russia
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 No qualification requirements, only quality of proposal
(mostly minimum price)
 Formal and unified approach to procurement
procedures
 Three types of procurement procedures
 Unified procurement information on a common official
site http://www.zakupki.gov.ru

4. 6th IPPC, Dublin, 14th August
Empirical Research
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 Auction vs negotiation: Vellez (2011), Lalive and Schmutzler
(2011), Bajari, McMillan, Tadelis (2009)
 Efficiency comparing to private sector: MacDonald, Handy, Plato
(2002)
 E-auctions: Soudry (2004), Singer, Roubik, Beffermann (2009),
Pavel and Sičáková-Beblavá (2013), Vaidya, Sajeev and Callender
(2006)
 Political risks: Moszoro and Spiller (2012), Chong, Staropoli and
Yvrande-Billon (2009)
 Corruption and collusion: Li and Zheng (2009), Chever and Moore
(2012), Porter and Zona (1993, 1997),
 Procurement researches in Russia: Yakovlev, Demidova, Balaeva
(2012), Podkolzina and Morozov (2012), Balsevich, Pivovarova
and Podkolzina (2012)

5. 6th IPPC, Dublin, 14th August
Sugar market in Russia
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 Strong seasonal pattern in production and
consumption
 The average retail mark-up on wholesale prices is 25–
30%
 Significant regional diversity in prices (till 60%)
 High market concentration
 Main consumers are retail consumers (approx. 50%)
and the food industry (about 40%)
 Market share of public procurement is 0.5%

6. 6th IPPC, Dublin, 14th August
Data
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 Data from Unified Register of State and Municipal Contracts
 Simple public procurement contracts in the period from the
January 1, 2011 till the December 31, 2011
 2720 contracts
 All prices are divided by the average retail sugar price in Russia
 Procurement market is not homogenous in terms of contract size
and prices
 The most popular procurement method is request of quotation
 Procurement contracts from single source are rare but give 50%
of value of all contracts in the sample
 Procurement prices are 10% lower than retail prices
 Use in our models only contracts with value lower than 500 000
rubles excluding contracts from the single source (2609
contracts)

7. 6th IPPC, Dublin, 14th August
Data
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Contract
value
Number
of
contracts
Share of
contracts
Average
standardised
contract price
of one kilo of
sugar
Average
standardised
starting
(maximum)
contract price of
one kilo of
sugar
Average
decrease of
the
standardised
price
Average
difference of
the contract
price from
standardised
average
regional price
Up to RUR
100,000
2229 81.95 0.900 1.015 0.102 0.076
From RUR
100,000 to
500,000
404 14.85 0.903 1.024 0.112 0.108
RUR
500,000 and
more
87 3.20 0.993 1.038 0.089 0.012
Total 2720 100 0.903 1.017 0.101 0.079

8. 6th IPPC, Dublin, 14th August
Hypotheses
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 Hypothesis 1. Placement of contracts through valid e-
auctions results in a lower prices as compared to
other procurement methods.
 Hypothesis 2. For larger contracts, prices are lower.
 Hypothesis 3. For contracts with longer terms of
execution, prices are higher than for short-term
contracts.
 Hypothesis 4. More competition leads to more
effective procurement.

9. 6th IPPC, Dublin, 14th August
Models
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Dependent variables:
the contract price for one kilogram of sugar,
decrease of the price for one kilogram of sugar in the
process of the contract placement,
deviation of the contract price for one kilogram of
sugar from the average retail price in the region at the
moment of the contract placement.
OLS-estimation with robust standard errors.
),0(~ N
,
  ZXY

10. Higher School of Economics , Moscow, 2013
Test for coefficients equality for different
procedures
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Model
Price Price decrease Price deviation
E-auction
vs. void e-
auction
E-auction vs.
request of
quotation
E-auction vs.
request of
quotation
E-auction
vs. void e-
auction
E-auction
vs. request
of
quotation
with
continuous
contract
volume
Test 11.72*** 6.60*** 20.75*** 12.77*** 6.06***
Dummy
coefficient
-0.453*** 0.062*** 0.280*** 0.269** -0.067***
with dummy
variables for
contract
volume
Test 12.77*** 7.39*** 28.38*** 14.10*** 6.76***
Dummy
coefficient
-0.469*** 0.051** 0.287*** 0.283** -0.057***

11. 6th IPPC, Dublin, 14th August
Models for contract price
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Regressors
(1) (2) (3) (4) (5) (6)
E-auction Void e-auction
Request for
quotation
E-auction Void e-auction
Request for
quotation
Contract volume (kg)
-1,15e-05*** 1,60e-06 -8,11e-06***
(2,72e-06) (5,07e-06) (1,56e-06)
Number of participants
-0,025*** -0,035*** -0,021* -0,037***
(0,010) (0,009) (0,012) (0,009)
Squared number of participants
0,003*** 0,003*** 0,002 0,002**
(0,001) (0,001) (0,001) (0,001)
Contract duration
2,49 e-04*** -2,82 e-04** 7,99e-05* 2,37 e-04*** -2,784 e-04** 5,63e-05
(6,39e-05) (1,197 e-04) (4,46e-05) (6,56e-05) (1,17 e-04) (4,54e-05)
Standardized average regional price
0,412*** 0,969*** 0,446*** 0,385*** 0,960*** 0,439***
(0,052) (0,143) (0,036) (0,055) (0,1382375) (0,036)
Dummies for a month yes yes yes yes yes yes
Contract value from 100 to 500 thousands
rublesc)
-0,007 0,017 -0,003
(0,020) (0,023) (0,009)
Constant
0,474*** -0,156 0,532*** 0,489*** -0,011 0,534***
(0,052) (0,137) (0,037) (0,056) (0,130) (0,038)
Number of observations 839 310 1 460 839 310 1 460
R2 0,469 0,774 0,211 0,454 0,776 0,200

12. 6th IPPC, Dublin, 14th August
Models for price decrease
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Regressors
(1) (2) (3) (4)
E-auction
Request for
quotation
E-auction
Request for
quotation
Contract volume (kg)
8,58e-06*** -4,13e-06***
(2,62e-06) (1,04e-06)
Number of participants
0,052*** 0,045*** 0,049*** 0,045***
(0,007) (0,006) (0,008) (0,006)
Squared number of participants
-0,003*** -0,003*** -0,003*** -2,65 e-04***
(0,001) (0,001) (0,001) (0,001)
Contract duration
-1,94 e-04*** 6,74e-05** -1,86 e-04*** 6,57e-05**
(5,30e-05) (3,07e-05) (5,36e-05) (3,10e-05)
Standardized average regional price
0,227*** 0,010 0,244*** 0,013
(0,031) (0,020) (0,030) (0,020)
Dummies for month yes yes yes yes
Contract value from 100 to 500 thousands
rublesc)
0,014 -0,023***
(0,014) (0,005)
Constant
-0,243*** 0,042* -0,251*** 0,035
(0,032) (0,024) (0,032) (0,025)
Number of observations 839 1 460 839 1 460
R2 0,364 0,276 0,350 0,278

13. 6th IPPC, Dublin, 14th August
Models for price deviation
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Regressors
(1) (2) (3) (4) (5) (6)
E-auction Void e-auction
Request for
quotation
E-auction Void e-auction
Request for
quotation
Contract volume (kg)
9,05e-06*** -1,86e-06 8,04e-06***
(2,71e-06) (5,27e-06) (1,52e-06)
Number of participants
0,022** 0,034*** 0,019* 0,036***
(0,010) (0,009) (0,011) (0,009)
Squared number of
participants
-0,002** -0,002** -0,002 -0,002**
(0,001) (0,001) (0,001) (0,001)
Contract duration
-2,29 e-04*** 2,592 e-04** -7,89e-05* -2,17 e-04*** 2,565 e-04** -5,53e-05
(6,16e-05) (1,156 e-04) (4,19e-05) (6,25e-05) (1,135 e-04) (4,26e-05)
Standardized average
regional price
0,415*** 0,049 0,355*** 0,440*** 0,058 0,361***
(0,043) (0,132) (0,030) (0,045) (0,128) (0,030)
Dummies for month yes yes yes yes yes yes
Contract value from 100
000 to 500 000 rublesc)
-0,004 -0,014 0,003
(0,019) (0,023) (0,009)
Constant
-0,303*** 0,001 -0,346*** -0,319*** -0,003 -0,348***
(0,044) (0,127) (0,033) (0,047) (0,121) (0,034)
Number of observations 839 310 1 460 839 310 1 460
R2 0,309 0,556 0,175 0,297 0,567 0,163

14. 6th IPPC, Dublin, 14th August
Results
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 Influence of contract and procedure characteristics on the
procurement prices vary for different procurement procedures.
 The placement of contracts through e-auction results in lower
prices comparing to request of quotation but not to void open
auction.
 Competition matters for e-auctions an requests for quotations.
 There is evidence that for larger contracts placed using e-auction
or request of quotation the sugar prices are lower .
 For contracts placed by e-auction or request of quotation, there is
evidence that for contracts with longer terms of execution the
prices are higher than for short-term contracts.
 Influence of the discussed factors on the prices in void e-
auctions differ from dependencies for other procurement
methods.

15. 6th IPPC, Dublin, 14th August
Policy Implication
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More precise analysis of a procurement results for void
e-auctions and procurement from a single source.
Monitoring for collusion identification.
Monitoring of large contracts especially from single
source.

16. Aleksandra Bashina
abashina@hse.ru