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Collusion detection in procurement auctions

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  • Ilya Morozov

    ()
    (International Laboratory for Institutional Analysis of Economic Reforms)

  • Elena Podkolzina

    ()
    (International Laboratory for Institutional Analysis of Economic Reforms)

Abstract

This paper proposes a method of bid-rigging detection, which allows us to reveal cartels in procurement auctions without any prior knowledge of the market structure. We apply it to data on highway construction procurements in one of the Russian regions and show that five suppliers demonstrated passive bidding behavior, which is consistent with the so called ‘rotating bidding’ scheme of collusion. The suggested methodology can be potentially used by both researchers and anti-trust agencies for cartel disclosure in various markets.

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Bibliographic Info

Paper provided by National Research University Higher School of Economics in its series HSE Working papers with number WP BRP 25/EC/2013.

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Length: 36 pages
Date of creation: 2013
Date of revision:
Publication status: Published in WP BRP Series: Economics / EC, February 2013, pages 1-36
Handle: RePEc:hig:wpaper:25/ec/2013

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Keywords: Bid-rigging; Tacit collusion; Public procurement; Cartel; Open auction.;

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References

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  1. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
  2. Patrick Bajari & Lixin Ye, 2003. "Deciding Between Competition and Collusion," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 971-989, November.
  3. Srabana Gupta, 2001. "The Effect of Bid Rigging on Prices: A Study of the Highway Construction Industry," Review of Industrial Organization, Springer, vol. 19(4), pages 451-465, December.
  4. Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-99, August.
  5. Patrick Bajari, 2001. "Comparing competition and collusion: a numerical approach," Economic Theory, Springer, vol. 18(1), pages 187-205.
  6. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. A. Banerji and J.V.Meenakshi & J.V.Meenakshi, 2002. "Buyer Collusion and Efficiency of Government Intervention in Wheat Markets in Northern India: An Asymmetric Structural Auctions Analysis," Working papers 104, Centre for Development Economics, Delhi School of Economics.
  8. Feinstein, Jonathan S & Block, Michael K & Nold, Frederick C, 1985. "Asymmetric Information and Collusive Behavior in Auction Markets," American Economic Review, American Economic Association, vol. 75(3), pages 441-60, June.
  9. Anna Zarkada-Fraser & Martin Skitmore, 2000. "Decisions with moral content: collusion," Construction Management and Economics, Taylor & Francis Journals, vol. 18(1), pages 101-111.
  10. Jofre-Bonet, Mireia & Pesendorfer, Martin, 2000. "Bidding behavior in a repeated procurement auction: A summary," European Economic Review, Elsevier, vol. 44(4-6), pages 1006-1020, May.
  11. Hendricks, Kenneth & Porter, Robert H, 1988. "An Empirical Study of an Auction with Asymmetric Information," American Economic Review, American Economic Association, vol. 78(5), pages 865-83, December.
  12. Holt, Charles A, Jr, 1979. "Uncertainty and the Bidding for Incentive Contracts," American Economic Review, American Economic Association, vol. 69(4), pages 697-705, September.
  13. Hopenhayn, Hugo A. & Skrzypacz, Andrzej, 2001. "Tacit Collusion in Repeated Auctions," Research Papers 1698r2, Stanford University, Graduate School of Business.
  14. Porter, Robert H & Zona, J Douglas, 1993. "Detection of Bid Rigging in Procurement Auctions," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 518-38, June.
  15. Paulo K. Monteiro & Flavio M. Menezes, 2000. "original papers : Auctions with endogenous participation," Review of Economic Design, Springer, vol. 5(1), pages 71-89.
  16. Brannman, Lance & Klein, J Douglass & Weiss, Leonard W, 1987. "The Price Effects of Increased Competition in Auction Markets," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 24-32, February.
  17. William S. Comanor & Mark A. Schankerman, 1976. "Identical Bids and Cartel Behavior," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 281-286, Spring.
  18. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November.
  19. Ishii, Rieko, 2009. "Favor exchange in collusion: Empirical study of repeated procurement auctions in Japan," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 137-144, March.
  20. In Lee & Kyungdong Hahn, 2002. "Bid-Rigging in Auctions for Korean Public-Works Contracts and Potential Damage," Review of Industrial Organization, Springer, vol. 21(1), pages 73-88, August.
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Cited by:
  1. Andrey Yakovlev & Aleksandra Bashina & Olga Demidova, 2014. "The effectiveness of simple homogeneous commodity procurement under rigid govermental regulation: the case of granulated sugar procurement in Russia," HSE Working papers WP BRP 13/PA/2014, National Research University Higher School of Economics.
  2. In Lee & Kyungdong Hahn, 2002. "Bid-Rigging in Auctions for Korean Public-Works Contracts and Potential Damage," Review of Industrial Organization, Springer, vol. 21(1), pages 73-88, August.

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