Bidding Behavior, Contract Prices, and Participant Numbers in Japanese Prefectural Procurement

This chapter analyzes Japan’s public procurement, focusing on bidding behavior patterns and contract price determination. The primary research questions are: How do different bidding formulas impact bidding behaviors and contract prices? What is the effect of the number of bidders on contract price ratios? To address these questions, this chapter employs multinomial logit models, OLS, Tobit, and truncated regression methodologies using data from over 22,000 cases in Ehime Prefecture (June 2014–March 2022). Evidence of collusive behavior, such as bid withdrawals and seemingly strategic phantom bids, influences procurement outcomes. A key finding is the necessity of discerning between the bidding behaviors in designated competitive bidding, characterized by frequent withdrawals and bids made at reservation prices, and those in general competitive bidding. Moreover, more bidders generally result in lower contract price ratios, suggesting increased participation enhances efficiency. Optimal participation is about 7–8 bidders, with each additional bidder reducing the ratio by nearly 0.01 points. Considering Japan’s 25 trillion yen annual public construction investment in fiscal 2020, a 0.01 reduction in the price ratio could mean savings of around 250 billion yen (1.6 billion USD).