Testing for common costs in the City of Helsinki bus transit auctions

Abstract

I study the effects of competition in the City of Helsinki bus transit market by conducting two tests for common costs in these first-price sealed-bid procurement auctions. I introduce bidder asymmetry and pooling to the tests. I also discuss the need for robustness checks for some arbitrary choices in these tests. The information environment seems to be that of common costs. The bus companies that have garages close to the contracted routes are influenced more by the common elements than those whose garages are further away. More competition does not necessarily lower procurement costs, and the City should not necessarily implement costly policies to induce more competition. A recent merger of two public companies cannot be criticized from a competition perspective.