Collusion in Auctions with Constrained Bids: Theory and Evidence from Public Procurement
70 Pages Posted: 30 Oct 2015
Date Written: October 20, 2015
We study the mechanics of cartel enforcement and its interaction with bidding constraints in the context of repeated procurement auctions. Under collusion, bidding constraints weaken cartels by limiting the scope for punishment. This yields a test of collusive behavior exploiting the counter-intuitive prediction that introducing minimum prices can lower the distribution of winning bids. The model's predictions are borne out in procurement data from Japan, where we find considerable evidence that collusion is weakened by the introduction of minimum prices.
Keywords: collusion, cartel enforcement, minimum prices, entry deterrence, procurement.
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