Presence of Competition between Paving Material Substitutes and Impact on Material Costs

Abstract

Each year, state DOTs make decisions about which paving jobs to let, and whether they should be designed as concrete, asphalt, or let as alternates. There is wide variation in the amount spent on concrete pavement and asphalt pavement across the states and over time. Asphalt and concrete pavement materials can be considered substitutes because they perform a similar function for consumers. We explore the question: Does the presence of competition between pavement material substitutes within a state impact pavement material prices? Using pay item information from 47 state DOTs since the year 2005 from the Oman BidTabs database, we calculate for each material the weighted average unit costs each year, adjust them for year-toyear change, and average those over the study period. We select the percent of total spending on concrete within a state for a given year as the metric to represent presence of competition. Comparing these, we find that the presence of competition has a significant impact on concrete unit costs. A negative linear trend is observable but not significant for asphalt. Therefore, this result suggests that if a state were to sustain a higher presence of competition for multiple years, they could expect to pay a lower unit cost for concrete overall.