Job Market Paper

Competition in U.S. Infrastructure

Real U.S. road construction prices are rising in a sector where government spending exceeds $120 billion annually. This paper examines the impact of competition in procurement auctions on these costs. I assemble a new dataset covering nearly the universe of state highway auctions between 2004 and 2024, with over 370,000 auctions and 1.3 million bids. The evidence shows thin competition: one- or two-bidder auctions account for a third of awards, and this share has risen since 2010. Using spatial variation in inter-state bidder locations, I directly estimate the causal effect of an additional bidder on price. I then develop a semi-parametric structural auction model that incorporates bidders’ uncertainty over rivals, which I use to decompose all bids into production costs and markups. I find that markup growth, rather production cost growth, is largely responsible for last decade of price increases. Model counterfactuals imply that guaranteeing one more bidder per auction would cut prices by roughly 14 percent. Finally, I ask why auction participation is low. I rule out fixed costs in the broader construction sector, but I find substantial entry costs at both the state and auction level, consistent with regulatory burdens and procurement complexity restricting competition.