Fazekas, M., Tóth, B. (2017): The effectiveness of the European Union in safeguarding competition in public procurement markets. GTI-WP/2017:04, Budapest: Government Transparency Institute.
The EU’s single market in government purchases constitutes a fundamental pillar of economic integration throughout the continent, as it amounts to 4% of GDP. If competition is deficient efficiency losses ensue. As we know surprisingly little about the effectiveness of monitoring and enforcement institutions designed to safeguard competition, we investigate whether the European Commission and the Court of Justice of the European Union are effective in changing market behaviour. Using a unique micro-level public procurement database of over 3.7 million contracts linked to all relevant legal decisions from 2009-2014, we investigate two distinct causal mechanisms: i) requiring a change in national public procurement legislation; and ii) striking down anticompetitive practices while leaving legislation unchanged. Theoretically, it is unclear whether any of these interventions would result in a lasting improvement in competitive outcomes such as the number of bidders, supplier composition, and discounts offered, as well as in public sector tender design such as procedure types or open advertisement. Using matched samples difference-in-differences estimation, we find that requiring legislative change has a significant and sizable positive impact on market openness: it increases the number of bidders (1.8-3%), lowers the incidence of single bidding (3-4%), decreases the market share of local winners (3-4%), and lowers prices (0.4-0.6%). Requiring change in anticompetitive practices has no discernible impact. The policy implications are profound, in order to improve the EU-wide single market of government purchases, better monitoring and stronger supranational legal action are needed.