Public Procurement for Innovation Policy -- Competition Regulation, Market Structure and Dominant Design

Ruyi Wan

PhD Candidate Tsinghua University, SPPM

Visiting Fellow Harvard University, HKS

Jurist Marster Tsinghua University, SOL

Research Background

Research Question & Hypothesis

Literature Review

Empirical Study

Results & Findings

> Recognition rules on indigenous innovation product

> Budget Rules > Review Rules > Contract Management

National S&T Conferece 2006

Mid-Long Term Guideline for S&T Development

MOF 2007: Rules on Government Procurement of Indigenous Innovation Product

Research Background

The Third Sino-US Joint Statement 2011

Lisbon Conference 2000

Kok Report 2004

Aho Report 2006

Europe 2020

European Commission 2007

> Innovation League Innitiative > European Digitalizaion Agenda > Industry Policy in Global Economy > Resource Efficiency Innitative

> Catalogue of indigenous innovation product

Research Question & Hypothesis

Literature Review

Empirical Study

Results & Findings

Research Background

Policy Dilemma of GP Policy for Innovation

Literature Review

• pioneer demand

• user-supply interaction > Strengthened interaction platform (Rolfstam, 2005)

> Sole interaction platform (Lundvall, 1988)

> Scale of the demand

> Sophistication of demand（Beise, 2003; Dalpe, 1992）

Policy Dilemma of GP Policy for Innovation

Literature Review

Procurement Regulation

Demand Driving Force

?

Catalogue

Policy Dilemma of GP Policy for Innovation

Literature Review

Procurement Regulation

Demand Driving Force

?

Policy Dilemma of GP Policy for Innovation

Literature Review

Demand Driving Force

? Independent Variable

Competition Regulation

Policy Dilemma of GP Policy for Innovation

Literature Review

? Independent Variable

Competition Regulation Dependent Variable

Dominant Design

Policy Dilemma of GP Policy for Innovation

Literature Review

Intermediate Varialbe

Market Structure

（Cabral, 2006）

Independent Variable

Competition Regulation Dependent Variable

Dominant Design

Intermediate Varialbe

Market Structure Independent Variable

Competition Regulation Dependent Variable

Dominant Design

Research Question & Hypothesis

Competition Regulation Market Strucuture Dominant Design

Procurement Method

> Open bidding

> Selective bidding

> Restrictive bidding

> Market Concertration

> Market Volume

Suppliers example-market

> How fast the emergence is

> How much the portion is

Research Question & Hypothesis

Literature Review

Empirical Study

Results & Findings

Research Background

Empirical Study

20,641,845 contracts 822,332 IT contracts

DOE DOT DOD DOA FTC FEC FDA ……

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1,113 example markets

Sales

I II III

Introduction Decline

Gompertz Curve and Emerging Dominent Design

Growth Mature

Dependent Variable

Dominant Design

Empirical Study

7040 7022 7020 7042 7021 7025 7010 7050 7035

Procurement Ratio and PLC stage

Sales Introduction Decline Growth Mature

Product Life Cycle

Dependent Variable

Dominant Design

Empirical Study

7040 7022 7020 7042 7021 7025 7010 7050 7035

Sales Introduction Decline Growth Mature

Product Life Cycle

Dependent Variable

Dominant Design

Empirical Study

Procurement Ratio and PLC stage

7040 7022 7020 7042 7021 7025 7010 7050 7035

Sales Introduction Decline Growth Mature

Product Life Cycle

Dependent Variable

Dominant Design

Empirical Study

Procurement Ratio and PLC stage

7040 7022 7020 7042 7021 7025 7010 7050 7035

Sales Introduction Decline Growth Mature

Product Life Cycle

Dependent Variable

Dominant Design

Empirical Study

Procurement Ratio and PLC stage

7040 7022 7020 7042 7021 7025 7010 7050 7035

α β

Sales Introduction Decline Growth Mature

Product Life Cycle

Dependent Variable

Dominant Design

Empirical Study

Procurement Ratio and PLC stage

Research Field Sales Price Profit Supplier Number

Chen & Qiao，2001 Bearing

Gong，2003 household

Zhang & Ding， Car

Lv，2007 Ring

Duan，2012 logistics

Ma，2007 telecommunication

Shi & Lin，2009 mobile

Xiao，2009 chemical

Liu & Lei，2010 household

Liu，2008 traffic

This Study IT product

Common Indicators of Belonging Fuction

Dependent Variable

Dominant Design

Empirical Study

Belonging area of PLC stages

Belonging function of three indicator

Dependent Variable

Dominant Design

Empirical Study

Belonging Area

Stage 1

Stage 2

Stage 3

Stage 4

Belonging Function

indicator 7010 7020 7021 7022 7025 7035 7040 7042 7050

s1 0 0.998 0 1 0 0 1 1 0

s2 0 0 1 0 0 0 0 0 0

s3 0 0 0 0 0.542 0.626 0 0 0.5

s4 0.866 0 0 0 0 0 0 0 0

g1 0 0 0 0 0 0 0 0.5 0

g2 0 0.735 0 0 0 0.941 0 0 1

g3 0 0 0.441 1 0.529 0 0 0 0

g4 0.706 0 0 0 0 0 0.882 0 0

e1 0 0 0 0.876 0 0 1 0 0

e2 0 1 0 0 0 0 0 0.562 0

e3 0 0 0.075 0 1 0 0 0 1

e4 0.682 0 0 0 0 0.382 0 0 0

Belonging degree of three indicators

PLC Stage Belonging function Belonging Degree

Introduction s1 ∩（g4 U g3）∩ e1 UT1（y ）

Growth （s1 U s2）∩（g1 U g2 U g3）∩（e2 U e3） UT2（y ）

Mature （s3 U s4）∩（g2 U g3 U g4）∩（e3 U e4） UT3（y ）

Decline （s2 U s3）∩（g1 U g2）∩ e4 UT4（y ）

Belonging function of Procured IT Products

Dependent Variable

Dominant Design

Empirical Study

UT（y） 7010 7020 7021 7022 7025 7035 7040 7042 7050

Introduction 0 0 0 0.876 0 0 0.882 0 0

Growth 0 0.734 0.033 0 0 0 0 0.281 0

Mature 0.234 0 0 0 0.287 0 0 0 0.211

Decline 0 0 0 0 0 0.363 0 0 0

PLC IT Product Classification Procure Scale Average Price Supplier Number

Introduction 1 7040 55 251291.50 3

Introduction 2 7022 623 175160.38 6

Growth 1 7020 2135 75666.50 11

Growth 2 7042 2109 51311.83 11

Growth 3 7021 6510 151243.88 14

Mature 1 7025 9683 153822.74 29

Mature 2 7010 15704 244562.58 25

Mature 3 7050 9594 118490.74 29

Decline 1 7035 13590 83265.36 38

Belonging Degree of Procured IT Products

PLC of Procured IT Products

Dependent Variable

Dominant Design

Empirical Study

7040 7022 7020 7042 7021 7025 7010 7050 7035

α β

Sales Introduction Decline Growth Mature

Dependent Variable

Dominant Design

Empirical Study

Product Life Cycle

0

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120

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α

α

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0 200 400 600 800 1000

β

β

Product Life Cycle

Procurement Scale

α β

α/β

Dependent Variable

Dominant Design

Empirical Study

0

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100

120

140

160

180

200

0 100 200 300 400 500 600 700 800

α/β

Juristication & Approval

Authorization

Threshold

Set-aside

Exceptions

Restrictive Bidding Selective Bidding

Y

N

Y

N

inlet

Market Competition

Open Bidding

Government Shaped Competition

Below threshold

Simplified Procurem

ent

N Y

Independent Variable

Competition Regulation

Open(%) Restrictive(%) Selective(%)

Empirical Study

n，N，i represents Supplier number，ai represents Market Share of Supplier i， A represents Market Volume.

Variable N

Mean Middle St Range Min Max Effective Missing

Supplier Number 1113 0 79.84 21 333.97 4531 1 4532

HHI 1113 0 0.3349 0.2344 0.28222 0.97 0.03 1

Statistic Description of Market Structure

Intermediate Varialbe

Market Structure

Empirical Study

Research Question & Hypothesis

Literature Review

Empirical Study

Results & Findings

Research Background

Results & Findings

Variables Sample

Mean Middle St Range Min Max Effective Missing

Dominent Design

Emerging Efficiency 1113 0 6.3107 2.7692 12.17738 100 0 100

HHI 1113 0 0.3349 0.2344 0.28222 0.97 0.03 1

Supplier Number 1113 0 79.84 21 333.97 4531 1 4532

Open Bidding 1113 0 0.6447 0.7422 0.32729 1 0 1

Selective Bidding 1113 0 0.1684 0.0714 0.24246 1 0 1

Restrictive Bidding 1113 0 0.187 0.0726 0.26436 1 0 1

Statistic description of all variables

Variable HHI Supplier Number

Open Bidding -.225***

(-.206)

-.384**

(-.144)

Selective Bidding .012*

(.020)

.067*

(.047)

Restrictive Bidding .054*

(.094)

-.178**

(-.127)

Constant -2.034*** 2.513***

R2 .081 .018

Adjust R2 .075 .012

F 13.456 2.862

Sample 1113 1113

Results & Findings

Influence of Competition Regulation on Market Structure

Variable Dominent Design Emerging Efficiency

HHI .072*

(.046)

Supplier Number .154**

(.172)

Constant .832***

R2 .032

Adjusted R2 .024

F 3.997

Sample 1113

Results & Findings

Influence of Market Structure on Dominent Design Emerging Efficiency

Influence of competition regulation on HHI in different stage

Variable Intro 1 Intro 2 Growth 1 Growth 2 Growth 3 Mature 1 Mature 2 Mature 3 Decline 1

7040 7022 7020 7042 7021 7025 7010 7050 7035

Open bidding -.001

（-.098） -.001*

（-.055） -.001*

（-.072） .000

（.035） .001

（.022） -.001**

（-.097） -.001*

（-.055） -.002**

（-.078） -.001*

（-.052）

Selective bidding -.004**

（-.221） .000

（.007） .000

（-.012） -.002*

（-.085） -.000

（-.001） -.001

（-.021） .000

（.007） .000

（.009） .001

（.030）

Restrictive bidding .000 （-.030）

.000 （.026）

-.001 （-.054）

.000 （.011）

-.002* （-.078）

-.001* （-.046）

.000 （.026）

-.002** （-.084）

-.001 （-.034）

Constant .856*** .547*** .664*** .594*** .492*** .528*** .547*** .494*** .442***

R2 .058 .132 .007 .009 .007 .011 .004 .012 .005

Adjusted R2 0.031 .017 .001 .005 .002 .007 .000 .009 .002

F 2.146* 1.689 1.126 1.980* 1.538* 3.050** 1.083 3.410*** 1.615*

Sample 109 292 501 631 700 829 826 841 960

Results & Findings

Influence of competition regulation on Number in different stage

Variable Intro 1 Intro 2 Growth 1 Growth 2 Growth 3 Mature 1 Mature 2 Mature 3 Decline 1

7040 7022 7020 7042 7021 7025 7010 7050 7035

Open bidding .023*

（.011） .083***

（.099） .101***

（.097） .083**

（.111） -.533*

（-.092） .609***

（.147） .688***

（.193） .554***

（.146） .762***

（.172）

Selective bidding .185**

（.178） .164*

（.161） .289*

（.128） .177

（.084） .104***

（.072） .600*

（.141） .213

（.028） .204*

（.059） .414

（.035）

Restrictive bidding .033 （.045）

.037 （.056）

.039 （.021）

.041 （.029）

.204* （.045）

.263 （.036）

.042 （.007）

.293* （.046）

.409* （.042）

Constant 1.878** 2.453* 3.776 7.016*** 7.236** 7.137 8.820* 10.682* 10.471

R2 .117 .042 .035 .016 .037 .026 .037 .018 .021

Adjusted R2 .092 .032 .029 .011 .033 .023 .033 .015 .018

F 4.647** 4.192** 5.887*** 3.355** 9.028*** 7.467*** 10.436*** 5.256*** 6.803***

Sample 109 292 501 631 700 829 826 841 960

Results & Findings

Results & Findings

Intermediate Varialbe

Market Structure Independent Variable

Competition Regulation Dependent Variable

Dominant Design

Market Concerntration

Market Volume

Dominant Design

Competition Regulation

1. Market structure shaping is a feasible logic for GP Policy for Innovation.

Results & Findings

Intermediate Varialbe

Market Structure Independent Variable

Competition Regulation Dependent Variable

Dominant Design

Market Concerntration

Market Volume

Dominant Design

Competition Regulation

Results & Findings

Intermediate Varialbe

Market Structure Independent Variable

Competition Regulation Dependent Variable

Dominant Design

Open bidding

Selective bidding

Restrictive bidding

Market Concerntration

Market Volume

Dominant Design

Results & Findings

Intermediate Varialbe

Market Structure Independent Variable

Competition Regulation Dependent Variable

Dominant Design

Open bidding

Selective bidding

Restrictive bidding

Market Concerntration

Market Volume

Dominant Design

2. Open bidding restricts the market shaping function of GP, while Selective & restrictive supports it.

0

0.05

0.1

0.15

0.2

0.25

导入1期 导入2期 成长1期 成长2期 成长3期 成熟1期 成熟2期 成熟3期 衰退1期

完全公开竞争 非完全公开竞争 限制供应商来源的完全公开竞争

Influence on Market Structure

Results & Findings

PLC

3. Selective & restrictive bidding is the major carrier of GP Policy for Innovation, but is only effective at the early stage of technology evolution.

Introduction Decline Growth Mature

Open (-)

Restrictive (+)

Selective (+)

Results & Findings

1. Market structure shaping is a feasible logic for GP Policy for Innovation.

2. Open bidding restricts the market shaping function of GP, while Selective & restrictive supports it.

3. Selective & restrictive bidding is the major carrier of GP Policy for Innovation, but is only effective at the early stage of technology evolution.

Thank you !