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The Impact of Delivery Synergies on Bidding in the Georgia School Milk Market

Robert C. Marshall1 / Matthew E. Raiff2 / Jean-Francois Richard3 / Steven P. Schulenberg4

1Penn State University,

2Bates White, LLC,

3University of Pittsburgh,

4Bates White, LLC,

Citation Information: Topics in Economic Analysis & Policy. Volume 6, Issue 1, ISSN (Online) 1538-0653, DOI: 10.2202/1538-0653.1327, February 2006

Publication History

Published Online:
2006-02-15

Abstract

Each summer milk processors around the country participate in sealed bid procurements for the right to provide public schools with milk throughout the subsequent academic year. School district contracts are an important part of vehicle routing problems that milk processors solve on an ongoing basis. There are allegedly substantial cost savings for a milk processor from servicing a district that is directly adjacent to one they already service. In this paper, following the work of Krishna and Rosenthal (1996), we construct a procurement model allowing for cost synergies. The equilibrium bid function maps directly into an empirical specification. Using data from a time period when bidders were allegedly acting non-cooperatively, our structural parametric estimation results give significant support for the presence of cost synergies in the bidding.

Keywords: procurement; synergy; structural estimation; milk

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[1]
Olivier Armantier, Jean-Pierre Florens, and Jean-Francois Richard
Journal of Applied Econometrics, 2008, Volume 23, Number 7, Page 965

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