This document summarizes a study on the effects of public procurement policy on innovation. It begins with background on relevant policies and literature. An empirical study analyzes over 1,100 IT product markets procured by the US government from 2004-2012. Regression results show that more open competition regulation is linked to less concentrated market structure, while selective and restrictive bidding increase concentration. More competitive market structure is then linked to faster emergence of dominant designs. Competition effects vary across different stages of product life cycles. Overall, the study finds public procurement policy and competition regulation can influence market structure and the pace of innovation.

1. 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

2. Research Background
Research Question & Hypothesis
Literature Review
Empirical Study
Results & Findings

3. > 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

4. Research Question & Hypothesis
Literature Review
Empirical Study
Results & Findings
Research Background

5. 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）

6. Policy Dilemma of GP Policy for Innovation
Literature Review
Procurement
Regulation
Demand
Driving Force
?
Catalogue

7. Policy Dilemma of GP Policy for Innovation
Literature Review
Procurement
Regulation
Demand
Driving Force
?

8. Policy Dilemma of GP Policy for Innovation
Literature Review
Demand
Driving Force
?Independent Variable
Competition Regulation

9. Policy Dilemma of GP Policy for Innovation
Literature Review
?Independent Variable
Competition Regulation
Dependent Variable
Dominant Design

10. Policy Dilemma of GP Policy for Innovation
Literature Review
Intermediate Varialbe
Market Structure
（Cabral, 2006）
Independent Variable
Competition Regulation
Dependent Variable
Dominant Design

11. 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

12. Research Question & Hypothesis
Literature Review
Empirical Study
Results & Findings
Research Background

13. Empirical Study
20,641,845 contracts822,332 IT contracts
DOE DOT DOD DOA FTC FEC FDA ……
2012
2011
2010
2009
2008
2007
2006
2005
2004
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
O
1,113 example markets

14. Sales
IIIIII
Introduction Decline
Gompertz Curve and Emerging Dominent Design
Growth Mature
Dependent Variable
Dominant Design
Empirical Study

15. 7040 7022 7020 7042 7021 7025 7010 7050 7035
Procurement Ratio and PLC stage
Sales Introduction DeclineGrowth Mature
Product Life Cycle
Dependent Variable
Dominant Design
Empirical Study

16. 7040 7022 7020 7042 7021 7025 7010 7050 7035
Sales Introduction DeclineGrowth Mature
Product Life Cycle
Dependent Variable
Dominant Design
Empirical Study
Procurement Ratio and PLC stage

17. 7040 7022 7020 7042 7021 7025 7010 7050 7035
Sales Introduction DeclineGrowth Mature
Product Life Cycle
Dependent Variable
Dominant Design
Empirical Study
Procurement Ratio and PLC stage

18. 7040 7022 7020 7042 7021 7025 7010 7050 7035
Sales Introduction DeclineGrowth Mature
Product Life Cycle
Dependent Variable
Dominant Design
Empirical Study
Procurement Ratio and PLC stage

19. 7040 7022 7020 7042 7021 7025 7010 7050 7035
α β
Sales Introduction DeclineGrowth Mature
Product Life Cycle
Dependent Variable
Dominant Design
Empirical Study
Procurement Ratio and PLC stage

20. 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

21. 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

22. 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

23. 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

24. 7040 7022 7020 7042 7021 7025 7010 7050 7035
α β
Sales Introduction DeclineGrowth Mature
Dependent Variable
Dominant Design
Empirical Study
Product Life Cycle

25. 0
20
40
60
80
100
120
0 200 400 600 800 1000
α
α
0
1
2
3
4
5
6
7
8
9
0 200 400 600 800 1000
β
β
Product Life Cycle
Procurement
Scale
α β
α/β
Dependent Variable
Dominant Design
Empirical Study
0
20
40
60
80
100
120
140
160
180
200
0 100 200 300 400 500 600 700 800
α/β

26. 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

27. 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

28. Research Question & Hypothesis
Literature Review
Empirical Study
Results & Findings
Research Background

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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.

35. Results & Findings
Intermediate Varialbe
Market Structure
Independent Variable
Competition Regulation
Dependent Variable
Dominant Design
Market Concerntration
Market Volume
Dominant
Design
Competition
Regulation

36. 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

37. 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.

38. 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 DeclineGrowth Mature
Open (-)
Restrictive (+)
Selective (+)

39. 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.

40. Thank you !