By Robert Clark & Decio Coviello –
Given enough bidders, auctions represent an efficient way for governments to ensure the provision of goods and services. However, calls for tender often involve few participants who may sometimes coordinate their actions to rig auction outcomes and deter the entry of potential competitors, thus resulting in much higher prices paid by governments. We summarize findings from an examination of behavior in calls for tender in procurement auctions in the construction industry in Quebec that shed light on the impact of bid coordination and entry deterrence. We use information uncovered during investigations into allegation of collusion in Quebec’s construction industry, along with detailed data on calls for tender for asphalt. Our analysis leverages the fact that collusion presumably ceased following the investigation to compare prices and participation levels before and after the investigation to learn about the cartel’s impact and about the relative importance of coordination and entry deterrence for achieving successful collusion.
