Can digital public procurement lift enterprise markup?

This paper investigates the impact of digital public procurement on firms’ markup by constructing a novel matched dataset. Based on an official catalogue of digital products and services, we use a Large Language Model (LLM)-based approach to identify digital procurement contracts from the Chinese government’s procurement records and match them with panel data on Chinese listed firms from 2015 to 2023. The empirical results show that participation in digital public procurement significantly increases firm markups. These results exhibit strong robustness after addressing potential endogeneity concerns and conducting a series of robustness checks. Mechanism analysis suggests that the positive effect on markup can be partially attributed to the improvement of financial and cost structures, innovation capacity, and production efficiency. Further heterogeneity analyses indicate that the impacts are more pronounced for smaller firms, private enterprises, firms in the ICT sector or highly competitive industries, and those in western regions. These findings emphasize the role of targeted public procurement in enhancing firm competitiveness and fostering the development of strategic industries in the digital era.