The More the Merrier? Number of Bidders, Information Dispersion, Renegotiation and Winner's Curse in Toll Road Concessions

In this paper, we empirically assess the effects of the winner's curse in auctions for toll road concession contracts. Such auctions are common-value auctions for incomplete contracts prone to pervasive renegotiations. We address three questions in turn. First, we investigate the overall effects of the winner's curse on bidding behaviour in such auctions. Second, we examine the effects of the winner's curse on contract auctions with differing levels of common-value components. Third, we investigate how the winner's curse affects bidding behaviour when we account for the possibility for bidders to renegotiate. Using a unique dataset of 49 worldwide concessions, we show that bidders bid less aggressively in toll road concession auctions when they expect more competition. In addition, we observe that this effect is larger for projects where the common uncertainty is greater, but weaker in weaker institutional frameworks, in which renegotiations are easier, implying opportunistic behaviour