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Detection of Bid Rigging in Procurement Auctions

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  • Robert H. Porter
  • J. Douglas Zona

Abstract

This paper examines bidding in auctions for state highway construction contracts on Long Island in the early 1980s, in order to determine whether bid rigging occurred. Detection of collusion is possible because of limited participation in the collusive scheme. The paper looks at differences in behavior between ring members and non-members. In these auctions, collusio did not take the form of a bid rotation scheme, in which only one ring member submits a bid. Instead, several ring members bid on most jobs. The apparent role of ring meetings prior to the auction was to designate a serious bidder, and its bid, and the other firms then frequently submitted phony higher bids. The bidding data indicate that the bids of non-cartel firms, as well as their rank distribution, were related to cost measures, such as how much backlog a firm was carrying. In contrast, the rank distribution of higher cartel bids was unrelated to similar cost measures, and differed from the distribution of the low cartel bid.

Suggested Citation

  • Robert H. Porter & J. Douglas Zona, 1992. "Detection of Bid Rigging in Procurement Auctions," NBER Working Papers 4013, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4013
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    References listed on IDEAS

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    1. Kenneth Hendricks & Robert H. Porter, 1989. "Collusion in Auctions," Annals of Economics and Statistics, GENES, issue 15-16, pages 217-230.
    2. 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 441-460, June.
    3. 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.
    4. John McMillan, 1991. "Dango: Japan'S Price-Fixing Conspiracies," Economics and Politics, Wiley Blackwell, vol. 3(3), pages 201-218, November.
    5. Hausman, Jerry A. & Ruud, Paul A., 1987. "Specifying and testing econometric models for rank-ordered data," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 83-104.
    6. repec:adr:anecst:y:1989:i:15-16 is not listed on IDEAS
    7. repec:adr:anecst:y:1989:i:15-16:p:10 is not listed on IDEAS
    8. Beggs, S. & Cardell, S. & Hausman, J., 1981. "Assessing the potential demand for electric cars," Journal of Econometrics, Elsevier, vol. 17(1), pages 1-19, September.
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