Electronic tendering of pharmaceuticals and medical devices in Chile

The present study investigates the effect of electronic tendering on the price paid by the public sector for pharmaceuticals and medical devices in Chile. This study uses two panel regression models to analyze a data set that covers 6888 tenders for these items between 2001 and 2006, which spans 2004, the year when use of the Chilecompra electronic platform becomes obligatory. Model 1 explains the winning bid in each tender relative to the historic price, whereas Model 2 explains the winning bid relative to the concurrent price paid by drugstore chains. The regressors include variables which in the theoretical literature are indirectly associated with purchase prices (tender volume, the number of bidders and the time between tenders) and a Chilecompra dummy variable which captures the direct effect of the platform. The novel hypothesis of this paper is that e-tendering engages the market mechanism more effectively than traditional tendering, because of reduced corruption and less supplier collusion, which results in a direct platform effect. The empirical results support the volume effect. Greater aggregation of purchases leads to 2.8% lower prices. The evidence does not support the other indirect channels. More bidders result in lower prices, but the number of bidders fails to increase after Chilecompra. More frequent tendering leads to lower prices for medical devices, but tender frequency decreases after the implementation of the platform. Finally, the empirical results confirm the direct platform effect. Electronic tendering over Chilecompra leads directly to a greater than 8% reduction in prices. These results contribute to the literature on the returns to IT investments.