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Using Bid Rotation and Incumbency to Detect Collusion: A Regression Discontinuity Approach

Author

Listed:
  • Kei Kawai

    (UC Berkeley)

  • Jun Nakabayashi

    (Kindai University)

  • Juan Ortner

    (Boston University)

  • Sylvain Chassang

    (Princeton University)

Abstract

Cartels participating in procurement auctions frequently use bid rotation or incumbency priority to allocate market shares. However, establishing a tight link between observed allocation patterns and firm conduct has been difficult: there are cost-based competitive explanations for such behavior. We show that by focusing on the set of auctions in which the winning and losing bids are very close, it is possible to distinguish allocation patterns reflecting cost differences across firms from patterns reflecting noncompetitive behavior. We apply our tests to two datasets: the sample of Ohio school milk auctions studied in Porter and Zona (1999), and a sample of municipal procurement auctions held in Japan.

Suggested Citation

  • Kei Kawai & Jun Nakabayashi & Juan Ortner & Sylvain Chassang, 2021. "Using Bid Rotation and Incumbency to Detect Collusion: A Regression Discontinuity Approach," Working Papers 2021-76, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2021-76
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    References listed on IDEAS

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    Cited by:

    1. Cappelletti, Matilde & Giuffrida, Leonardo M., 2021. "Procuring survival," ZEW Discussion Papers 21-093, ZEW - Leibniz Centre for European Economic Research.
    2. Aljoscha Janssen, 2022. "Price dynamics of Swedish pharmaceuticals," Quantitative Marketing and Economics (QME), Springer, vol. 20(4), pages 313-351, December.
    3. Panhans, Matthew T., 2023. "The Rise, Fall, and Legacy of the Structure-Conduct-Performance Paradigm," SocArXiv dvm3e, Center for Open Science.
    4. Matilde Cappelletti & Leonardo M. Giuffrida & Gabriele Rovigatti, 2022. "Procuring Survival," CESifo Working Paper Series 10124, CESifo.
    5. De Leverano, Adriano, 2023. "Clustered bids in first-price auctions: Collusion or competition?," Economics Letters, Elsevier, vol. 233(C).
    6. Granlund, David & Rudholm, Niklas, 2023. "Calculating the probability of collusion based on observed price patterns," Umeå Economic Studies 1014, Umeå University, Department of Economics, revised 13 Oct 2023.
    7. Lu, Jiaxuan, 2023. "The economics of China’s between-city height competition: A regression discontinuity approach," Regional Science and Urban Economics, Elsevier, vol. 100(C).

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    More about this item

    Keywords

    procurement; collusion; backlog; incumbency; regression discontinuity; antitrust;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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