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

Sylvain Chassang, Juan Ortner

    Research output: Contribution to journalArticle

    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

    ASJC Scopus subject areas

    • Economics and Econometrics

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