THE DETERMINANTS OF PRICE AND QUALITY IN COMPETITIVELY TENDERED CONTRACTS

Traditional analysis of the impact of competitive tendering on service provision has focused on costs and prices. Critics have argued that p rice reductions lead to lower quality. We tested this hypothesis using a two equation econometric model, with data from a panel of 61 cleani ng services contracts. The results indicated that while competition re duced price significantly, quality of service was maintained or even e nhanced. The effect of competition turned out to be greater on prices than on quality, and the influence of ownership appeared to be negligi ble on both. The evidence does not support the hypothesis that efficie ncy gains are traded off for lower quality.