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Using spatial econometrics to test for collusive behavior in procurement auction data

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In this paper we evaluate whether spatial econometric techniques can be used to test for collusive bidder behavior in public procurement auctions, using the submitted bids and procurement characteristics. The proposed method is applied to the so-called Swedish asphalt cartel, which was discovered in 2001. As our dataset covers the period 1995-2009, we are able to test for conditional independence between complementary cartel bids before and after the detection. Our estimates show a significant positive correlation between complementary cartel bids during the cartel period, whereas a non-significant (and negative) correlation is shown during the later period. The parameter estimate of interest also differs in magnitude between periods. Hence, we argue that the method suggested can be used to verify or possibly screen for collusive bidding behavior. The main advantage of this method is its relatively small data requirements.

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  • Bergman, Mats A. & Lundberg, Johan & Lundberg, Sofia & Stake, Johan Y., 2015. "Using spatial econometrics to test for collusive behavior in procurement auction data," Umeå Economic Studies 917, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0917
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    1. Cramton, Peter & Schwartz, Jesse A, 2000. "Collusive Bidding: Lessons from the FCC Spectrum Auctions," Journal of Regulatory Economics, Springer, vol. 17(3), pages 229-252, May.
    2. Anders Lunander & Sofia Lundberg, 2013. "Bids And Costs In Combinatorial And Noncombinatorial Procurement Auctions—Evidence From Procurement Of Public Cleaning Contracts," Contemporary Economic Policy, Western Economic Association International, vol. 31(4), pages 733-745, October.
    3. Pim Heijnen & Marco A. Haan & Adriaan R. Soetevent, 2015. "Screening for collusion: a spatial statistics approach," Journal of Economic Geography, Oxford University Press, vol. 15(2), pages 417-448.
    4. 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.
    5. 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 518-538, June.
    6. In Lee & Kyungdong Hahn, 2002. "Bid-Rigging in Auctions for Korean Public-Works Contracts and Potential Damage," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 21(1), pages 73-88, August.
    7. van Damme, E.E.C. & Börgers, T., 2003. "Auction Theory for Auction Design," Discussion Paper 2003-002, Tilburg University, Tilburg Law and Economic Center.
    8. Srabana Gupta, 2001. "The Effect of Bid Rigging on Prices: A Study of the Highway Construction Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 19(4), pages 451-465, December.
    9. Froeb, Luke M. & Koyak, Robert A. & Werden, Gregory J., 1993. "What is the effect of bid-rigging on prices?," Economics Letters, Elsevier, vol. 42(4), pages 419-423.
    10. Martin Pesendorfer, 2000. "A Study of Collusion in First-Price Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 381-411.
    11. Robert Porter, 2005. "Detecting Collusion," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 26(2), pages 147-167, December.
    12. Marc S. Robinson, 1985. "Collusion and the Choice of Auction," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 141-145, Spring.
    13. In Lee, 1999. "Non-cooperative Tacit Collusion, Complementary Bidding and Incumbency Premium," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 15(2), pages 115-134, September.
    14. Sofia Lundberg, 2005. "Restrictions on Competition in Municipal Competitive Procurement in Sweden," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 11(3), pages 329-342, August.
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    More about this item

    Keywords

    Antitrust; Auction; Cartel; Collusion; Complementary bidding; Public procurement; Spatial econometrics; Road re-pavement;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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