1.2.1 Testing for Common Costs in the City of Helsinki Bus Transit Auctions
In this essay, I study two policy questions concerning the bus transit market in the City of Helsinki. Both questions are viewed from the perspective of the effects of competition. The first is whether the merger of the City owned private company Suomen Turistiauto Oy and the Helsinki City Transport’s (HKL) bus transport depart- ment, HKL-bussiliikenne, in 1st May 2005 was good policy. The second is whether, as planned, the City should spend resources to induce more competition in this market. One possibility that has been considered by the procurement officials is to build new City owned garages and rent these to new entrants.
To answer these questions, I perform two tests developed by Haile at al. (2003) for common values. The setting is a first-price sealed-bid procurement auction. The main contribution of this essay is the empirical application and its policy implications. Novelty is achieved by extending the testing framework by allowing the bidders to be asymmetric. This I achieve by dividing the bidders into two groups: the bidders with garages far from the contracted routes and the bidders with garages near the contracted routes. I conduct the estimations and the testing separately for these groups and jointly for both the groups in the symmetric case. Another aspect of interest is showing the need for robustness checks for some arbitrary choices in the Haile et al. (2003) testing procedures. This means that the results of the test may change with some choices that the researcher has to make when conducting these tests. However, in the asymmetric specification the results are robust. To my knowledge, this is the second study that applies the Haile et al. (2003) methodology2.
In practise, these tests are conducted in the following way. First, I have to make some preliminary treatments to match the data to meet the assumptions of the estimation and the testing procedures. I have to address the complications brought by