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

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  • Sylvain Chassang
  • Juan Ortner

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 of punishment. This yields a test of collusive behavior exploiting the counterintuitive prediction that introducing minimum prices can lower the winning-bid distribution. The model’s predictions are borne out in Japanese procurement data, where we find evidence that minimum prices weakened collusion. A robust design insight is that setting a minimum price at the bottom of the observed winning-bid distribution necessarily improves over a minimum price of zero.

Suggested Citation

  • Sylvain Chassang & Juan Ortner, 2019. "Collusion in Auctions with Constrained Bids: Theory and Evidence from Public Procurement," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2269-2300.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/701812
    DOI: 10.1086/701812
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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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