The impact of grading system on participation of firms in auctions. From the case for civil engineering work by the ministry of land, infrastructure, transport and tourism

Abstract

Japan’s government procurement has a grading system. The system ranks firms according to their size and technical level and limits their opportunities to participate in auctions. We theoretically and empirically verified whether the grading system affects firms’ participation in auctions, using the case of the Chugoku Regional Development Bureau, where grade classifications were integrated in FY2013. As a result, we have shown that the upper-grade firms participate more in auctions, the lower-grade firms participate less in auctions, and in total firms participate more in auctions when grade classifications were integrated than when grade classifications were not integrated.