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Collusion in public procurement: the role of subcontracting

Author

Listed:
  • B. Cesi

    (University of Roma Tor Vergata)

  • M. Lorusso

    (University of Rome Tor Vergata)

Abstract

This paper investigates how subcontracting affects collusion in public procurement. In a model in which a public buyer runs simultaneous or sequential competitive procedures we show that the stability of collusive agreements depends on the level of subcontracting share and it is not necessarily increasing in this share. In a repeated procurement in which contractors and subcontractors are involved in collusive agreements enforced by slit award and bid rotation strategies we find that simultaneous procedures induce less collusion than sequential procedures, with split award strategies allowing the less stable collusive scheme. We also find that allowing a further increase in the subcontracting share strengthens collusion when the share is low but it mitigates collusion when the share is high. Thus, the competitive format and the allowed subcontracting share must be carefully managed by the public buyer in order to prevent collusion.

Suggested Citation

  • B. Cesi & M. Lorusso, 2020. "Collusion in public procurement: the role of subcontracting," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(1), pages 251-265, April.
    • Handle: RePEc:spr:epolit:v:37:y:2020:i:1:d:10.1007_s40888-019-00167-3
    DOI: 10.1007/s40888-019-00167-3
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    More about this item

    Keywords

    Repeated procurement; Collusion; Subcontracting;
    All these keywords.

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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