Determinants of the number of bidders and win-reserve ratio in open competitive tendering: Relationship-specific investments and incomplete contracts

In open competitive tendering in Japan, one-party bid events where only one contractor submits a bid frequently occur. This situation has been criticized as hindering economic efficiency and fairness. This study uses bidding records to statistically analyze the factors that influence the number of bidders and cause one-party bids, which subsequently influence the win-reserve ratio. We found that fewer bidders participate in bidding for deals that require relationship-specific investments, resulting in a higher win-reserve ratio. In biddings with ambiguous specifications and incomplete contracts, more bidders participate, leading to a lower win-reserve ratio. Aside from these indirect effects mediated by the number of bidders, some factors directly influence the win-reserve ratio. Interestingly, indirect and direct effects conflict for follow-up deals and deal size. Thus, by highlighting deal-specific factors and differentiating between indirect and direct effects, this study brings new insights into the discussion on bidder behavior and its outcomes.