Collusion in auctions with constrained bids: Theory and evidence from public procurement

Sylvain Chassang, Juan Ortner

Research output: Contribution to journalArticle

3 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)2269-2300
Number of pages32
JournalJournal of Political Economy
Volume127
Issue number5
DOIs
StatePublished - Oct 1 2019
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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