Japanʼs government procurement follows a grading system. The system ranks firms according to their size and technical level, limiting their opportunities to participate in auctions. We empirically verify whether the grading system affects procurement cost of scoring auctions, using the case of the Chugoku Regional Development Bureau from FY2013, when grade classifications were first integrated. A Difference-indifferences analysis reveals two effects. First, integrating grades decreases procurement cost by 1.7%. Second, this decrease in procurement cost is seen only for the former higher grades, not for the former lower grades.
