Title

Collusion in Auctions with Constrained Bids: Theory and Evidence from Public Procurement

Author(s)

Sylvain Chassang Sylvain Chassang (New York University)

Juan Ortner Juan Ortner (Boston University)

Abstract

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 repeated 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 evidence that collusion is weakened by the introduction of minimum prices. A robust design insight is that setting a minimum price at the bottom of the observed distribution of winning bids necessarily improves over a minimum price of zero.

Creation Date

2017-02

Section URL ID

Paper Number

072_2015

URL

http://people.bu.edu/jortner/index_files/minimumPrices.pdf

File Function

Jel

D44

Keyword(s)

collusion, cartel enforcement, minimum prices, entry deterrence, procurement

Suppress

false

Series

10