Subcontractor Networks and Affiliated Private Costs : Evidence from Oklahoma Bridge Contracts

This paper offers a theoretical framework associating subcontractor networks in procurement auctions to affiliated costs among bidders. Building on the methodology by Li and Zhang (2010), we construct a model that allows for cost affiliation depending on firm-pair observables. The extension is used to test for entry affiliation caused by overlapping subcontractor networks in a sample of Oklahoma bridge building contracts from 2004 to 2016. The empirical analysis finds statistically significant evidence of affiliation, driven by subcontracting networks, affecting firms’ decisions to bid on projects