Simon Domberger

Competitive Tendering and Contracting in the Public Sector: A Survey

This paper is a survey of the role and impact of competitive tendering and contracting (CTC) policies in the public sector. The paper examines the theoretical rationale for introducing competition in the provision of public services and the methodology by which contracting decisions are reached. It investigates the extent of implementation and nature of outcomes in several countries. A broad sweep of the empirical findings suggests that CTC generates substantial cost savings. Lack of adequate data makes an assessment of the effect on quality more troublesome, and further research is needed

The Determinants of Price and Quality in Competitively Tendered Contracts

Traditional analysis of the impact of competitive tendering on service provision has focused on costs and prices. Critics have argued that price reductions lead to lower quality. We tested this hypothesis using a two equation econometric model, with data from a panel of 61 cleaning service contracts. The results indicated that while competition reduced price significantly, quality of service was maintained or even enhanced. The effect of competition turned out to be greater on prices than on quality, and the influence of ownership appeared to be negligible on both. The evidence does not support the hypothesis that efficiency gains are traded off for lower quality. Copyright 1995 by Royal Economic Society.

Advertising and Post-entry Oligopoly Behaviour

This paper uses a two-stage methodology to examine the advertising response to new entry by incumbent firms. In the first stage, time-se ries regressions are employed to identify the advertising responses for a sample of forty-two companies in consumer goods markets. In the second stage, cross-section analysis is used to model the factors that might explain the post-entry increase in advertising. The results suggest a systematic response by dominant firms in static markets, and support the view that entry-deterring behavior is most likely where other entry barriers ar e already present. Copyright 1988 by Blackwell Publishing Ltd.

Examining the Magnitude and Sources of Cost Savings Associated with Outsourcing

This article analyzes the impact of outsourcing on the cost of maintenance and warehousing services in the New Zealand Army. Using a present-value framework, a costing methodology is developed that accounts for production costs, one-off costs (such as redundancy payments), and ongoing transaction costs associated with the outsourcing exercise. The authors find that expenditure levels have been reduced by between 24% and 37%. They also examine the sources of the observed savings and find that the majority of the savings have come from labor-saving technical change (23%) and labor shedding and reductions in inefficiency (58%), rather than cuts in the terms and conditions of employment (19%).

The distribution of price changes in oligopoly

Econometric analysis of the skew of price change distributions for an eighty industry sample over an eleven year period indicates that the distributions are less skewed in times of rapidly changing prices, in concentrated oligopolies, and in markets with little product heterogeneity. The results provide evidence of less price staggering and greater pricing coordination by firms in times of high inflation and in oligopolistic markets respectively. Tight oligopolies also appear to have more symmetric distributions when prices are falling than when they are rising, suggesting that price decreases are more readily followed than increases. Copyright 1993 by Blackwell Publishing Ltd.

Price discrimination in conveyancing: A reply to our critics

Stephen et al. (1993, p109) raise doubts concerning the “principal policy conclusion” of our paper, that deregulation had reduced the degree of price discrimination in the conveyancing market between 1983 and 1986. Their main objection is that the empirical model imposed unwarranted restrictions upon the data and that the econometric specification did not allow for potential interand intramarket variations in price discrimination. They use data derived from a telephone survey to estimate the extent of price discrimination in conveyancing and its variability both between and within the geographical areas that they sampled. It should be noted that they do not address the fundamental question of the paper, namely, whether deregulation had an influence on price discrimination and the quality of service in the conveyancing market. Their sole purpose is to argue that the methodology is “unequal to the task” of answering this question. In this short reply we will comment on both the theoretical and the empirical issues raised in their paper. In Section II we explain the significance of the characterization of the supply side of the conveyancing market as being an effective cartel in the base year of our investigation. We argue that this model is perfectly adequate for analyzing changes in price discrimination over the time period involved. Stephen et al. champion a framework where solicitors are essentially price-discriminating oligopolists with varying degrees of market power, but their analysis applies to a later period. In Section III we examine the empirical issues raised by Stephen et al., including their own results, which are based on a telephone survey of conveyancing charges. We question their claim that their evidence supports the hypothesis of significant nationwide heterogeneity of pricing practices among solicitors. Finally, Section IV will conclude with some remarks on the complementary nature of the respective research contributions.

Private and public sector regulation of competitively tendered contracts

This paper addresses two contractual issues using a sample of competitively tendered contracts for cleaning services. First, the paper considers the characteristics that distinguish private from public sector organisations in their methods of selection and regulation of contractors. Secondly, the paper examines the perceived effectiveness of such regulatory mechanisms in terms of compliance with contract specifications and overall assessment of quality. Econometric analysis reveals that private sector organisations differ from their public sector counterparts in the selection procedures of contractors. Moreover, significant differences emerge in the apparent efficacy of a range of regulatory instruments in assuring contractual performance.