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The Outsider and Sunk Cost Effects on 'Dango' in Public Procurement Bidding: An Experimental Analysis

Author

Listed:
  • Nihashi, M.
  • Saijo, T.
  • Une, M.

Abstract

This paper presents the result of experiments for finding some insight into an effect of the new bidding system in Japanese public construction works procurement on bidders' collusion, which is called 'dango'. We focused on an effect of the entry of an outsider who is not a dango member. The main conclusion of the experiments is that an outsider, a subject who is not allowed to communicate with other subjects, has a robust effect to prevent other subjects from colluding and to make the winning price decrease considerably.

Suggested Citation

  • Nihashi, M. & Saijo, T. & Une, M., 2000. "The Outsider and Sunk Cost Effects on 'Dango' in Public Procurement Bidding: An Experimental Analysis," ISER Discussion Paper 0514, Institute of Social and Economic Research, Osaka University.
  • Handle: RePEc:dpr:wpaper:0514
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    File URL: http://www.iser.osaka-u.ac.jp/library/dp/2000/dp0514.pdf
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    References listed on IDEAS

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    1. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
    2. Isaac, R. Mark & Walker, James M., 1985. "Information and conspiracy in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 6(2), pages 139-159, June.
    3. John McMillan, 1991. "Dango: Japan'S Price-Fixing Conspiracies," Economics and Politics, Wiley Blackwell, vol. 3(3), pages 201-218, November.
    4. McKelvey, Richard D & Palfrey, Thomas R, 1992. "An Experimental Study of the Centipede Game," Econometrica, Econometric Society, vol. 60(4), pages 803-836, July.
    5. McAfee, R Preston & McMillan, John, 1992. "Bidding Rings," American Economic Review, American Economic Association, vol. 82(3), pages 579-599, June.
      • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
    6. Douglas D. Davis & Charles A. Holt, 1994. "Market Power and Mergers in Laboratory Markets with Posted Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 467-487, Autumn.
    7. Saijo, Tatsuyoshi & Une, Masashi & Yamaguchi, Toru, 1996. ""Dango" Experiments," Journal of the Japanese and International Economies, Elsevier, vol. 10(1), pages 1-11, March.
    8. Davis, Douglas D & Holt, Charles A, 1998. "Conspiracies and Secret Discounts in Laboratory Markets," Economic Journal, Royal Economic Society, vol. 108(448), pages 736-756, May.
    9. Isaac, R. Mark & Ramey, Valerie & Williams, Arlington W., 1984. "The effects of market organization on conspiracies in restraint of trade," Journal of Economic Behavior & Organization, Elsevier, vol. 5(2), pages 191-222, June.
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    More about this item

    Keywords

    CONSTRUCTION ; PRICES ; BIDDING;

    JEL classification:

    • L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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