An econometric identification of abnormally low bids in the procurement market: discriminant analysis

Jinook Jeong, Hyunwoo Lee, Jung Jae Kim

Research output: Contribution to journalArticlepeer-review


In the public construction procurement market, ‘abnormally low bids (ALB)’ are prevalent and they cause many social and economic problems. Also, when the procurement bids are colluded, ALB make the competitive price systematically underestimated. As many countries regulate ALB, their criteria to identify ALB are not homogenous. Most of the criteria are based on construction cost, which is usually inaccurate, vulnerable to accounting manipulation, and limited to the supply side information of the market. We propose an econometric identification process of ALB using a discriminant analysis. It is based on a general mixture model and easily estimable by MLE. We apply our method to Korean public construction bidding data from 2007 to 2016. The estimation results identify the determinants of the bid prices, along with the determinants of ALB, and presents a more accurate assessment of the collusion damage.

Original languageEnglish
JournalJournal of Industrial and Business Economics
Publication statusAccepted/In press - 2023

Bibliographical note

Funding Information:
We are grateful to Jin S. Cho, Yun J. Choi, Jiyoung Lee, the participants of Yonsei School of Economics Wednesday Seminar, and two anonymous referees for their helpful advice and comments. We also thank Construction Association of Korea (CAK) for the valuable data. This study was partially funded by the National Research Foundation of Korea (Grant Number NRF-2016S1A3A2923769). The authors declare that they have no conflict of interest.

Publisher Copyright:
© 2023, The Author(s) under exclusive licence to Associazione Amici di Economia e Politica Industriale.

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Economics, Econometrics and Finance(all)


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