Competitive conditions in the public procurement markets: an investigation with network analysis

Abstract

AbstractThe aim of this paper is to use network analysis as a monitoring tool for the competitive conditions and the behavior of the contracting authorities and companies in the public procurement market. The proposed method examines the market using network entropy and conditional network entropy, along with each agent's metrics. Network entropy offers information about the market conditions for the authorities and companies’ groups. The conditional network entropy measures the distribution of contracts across sellers or buyers for each group. The findings are signals of possible dominant positions and preferential treatment. In the second stage, the agency uses the agents’ degrees and entropies, unweighted and weighted, to inspect for possible preferential treatment or market dominance by specific agents. We applied the method in the pacemakers’ public procurement market using data from 33 countries from the period 2009–2019. The findings indicated that even though the network entropy and the conditional network entropy indicated that the market operated competitively, the examination of the companies’ degree centrality reveals the presence of at least one dominant company.