This paper offers a theoretical framework associating subcontractor networks in procurement auctions to affiliated costs among bidders. Building on the methodology by Li and Zhang (2010), we construct a model that allows for cost affiliation depending on firm-pair observables. The extension is used to test for entry affiliation caused by overlapping subcontractor networks in a sample of Oklahoma bridge building contracts from 2004 to 2016. The empirical analysis finds statistically significant evidence of affiliation, driven by subcontracting networks, affecting firms’ decisions to bid on projects.
JEL Codes: D44, D85, L14, H57