Umeå Economic Studies,
Umeå University, Department of Economics

Abstract: Auction theory suggests that as the number of bidders (competition) increases, the sizes of the participants’ bids decrease. An issue in the empirical literature on auctions is which measurement(s) of competition to use. Utilizing a dataset on public procurements containing measurements on both the actual and potential number of bidders I find that a workhorse model of public procurements is best fitted to data using only actual bidders as measurement for competition. Acknowledging that all measurements of competition may be erroneous, I propose an instrumental variable estimator that (given my data) brings about a competition effect bounded by those generated by specifications using the actual and potential number of bidders, respectively. Also, some asymptotic results are provided for non-linear least squares estimators obtained from a dependent variable transformation model.

Keywords: dependent variable transformation model; instrumental variable; measurement error; non-linear least squares

JEL-codes: C26; C51; C57; D22; D44

34 pages, First version: January 11, 2016. Revised: June 17, 2016.

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