Contract renewal in urban water services, incumbent advantage and market concentration

Abstract

Contract renewal with the incumbent is common practice in the contracting-out of public services. It could, however, affect competition by reinforcing trends towards market concentration. This article contributes empirical evidence on the determinants of the result of public tenders for the renewal of private provision of the urban water service. A dataset with information on 215 public tenders held in Spain between 2008 and 2019 is employed. The methodology is grounded in logistic regression techniques. The findings indicate that incumbents' size does not play a role in the proba-bility of alternating between service providers. Furthermore, competition−proxied by the number of bidders−and transparency in managing public tenders both increase the likelihood of alternating be-tween providers. Lastly, the estimates suggest that larger municipality size and discretionary power of entrenched political parties might also play a role in favoring incumbents' contract renewal.