Invitational bidding and award strategies for technological innovation of public goods: A contest model analysis

Abstract

Invitational bidding is key to encouraging enterprise participation in the technological innovation of public goods. This study develops a contest model that incorporates supplier type (independent or public sector-affiliated), heterogeneous innovation capabilities, and project-specific technical risks. Using limiting-case analysis, we compare two invitational bidding strategies on innovation and efficiency of benefits: inviting only independent suppliers and inviting both independent and affiliated suppliers. We also identify the boundary conditions under which long-term contracts lower the public sector’s obligatory award budget. The key findings are as follows: Competition is strengthened when technically strong independent suppliers bid alongside affiliated suppliers; however, competition weakens when independent suppliers lack technical strength. Long-term supply contracts may not necessarily enhance competition and may diminish suppliers’ motivation for technological innovation. Innovation and benefit improvement are rarely achieved simultaneously. Both goals can be achieved only when independent suppliers have clear technical advantages, making it optimal for the public sector to invite both independent and affiliated suppliers to bid. When innovation projects involve high technical risks or independent suppliers demonstrate strong innovation capabilities, the public sector may reduce the award budget using long-term contracts as incentives to successfully motivate suppliers.

Keywords

technological innovation of public goods / invitational bidding / contest model / procurement contract / award strategy

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Funding

National Key Research and Development Program of China(2023YFC3804901)