This working paper  is available here. A summary version, called ‘New Research on the Effectiveness of Bidding Rings: Implications for Competition Policies’ (2019) CPI Antitrust Chronicle April,  can be found here but I have to say I found this shorter version to be slightly confusing, so I would advise you to read the longer paper.

There seems to be a consensus that bid rigging is more harmful and deserving of higher penalties than ordinary price fixing violations. Reflecting this, there is empirical evidence that antitrust penalties are more severe for rings than for classic price-fixing cartels. A number of jurisdictions, such as Germany and Italy, impose criminal liability only for bid rigging infringements, but not for other types of cartel. Multilateral organisations, such as the OECD and the International Competition Network, have given special attention to the problems of enforcement against bid rigging.

Yet, this antipathy toward bid rigging relative to the more common form of collusive conduct (classic price fixing) is puzzling, given that bidding rings achieve lower average overcharges than private cartels: the median overcharges on modern private international cartels run about 25% lower than the median overcharges on price-fixing cartels.

Bid Rigging Sanctions

This paper surveys the economic literature on collusion, with a special focus on bid rigging. It also draws upon large data sets to examine empirically potential explanatory variables for success among bidding rings, and advances a number of policy recommendations.

A first section pursues an analysis of economic concepts of bid rigging.

Bidding rings pick an auction winner who will bid below the competitive price of an item offered for sale, or designate a sealed-bid winner who will bid higher than the competitive price of a tender. Price-fixing cartels and bidding rings are similar in that participants agree voluntarily to engage in secret collusion which increases the pool of monopoly profits. Both types of collusive activity require an agreement about viable mechanisms for sharing the spoils and for punishing deviations from the collusive agreement.

Nonetheless, bid rigging has several unique conceptual features that distinguish it from other forms of price fixing. Current economic reasoning tends to relegate bidding rings to collusion between few members within auctions. Auction theory offers a rich set of suggestions for explaining the price effects of bidding rings, which has proved useful in understanding the performance of specific, well-documented rings.

However, empirical modelling to explain variation in ring overcharges is unlikely to be able to incorporate all the richness in detail that auction theory proposes. Many factors are simply unknown or unmeasurable in large samples of modern bid-rigging infringements. Further, details of bid-rigging conduct or auction design simply go unmentioned in most decisions posted by antitrust authorities, in the business press, or in follow-up published studies by academics. In order to obtain a sufficiently large data set for statistical analysis, such details may have to be sacrificed. In other words, the explanatory power of auction theory may be lower than ideal for the purpose of empirical analyses of the type performed in this paper.

Section III describes past efforts at estimating bid rigging overcharges.

Growing out of the general interest of Industrial Organisation economists in market power, the first journal papers to analyse overcharges of bidding rings empirically  using formal economic methods started appearing in 1989. Since then, empirical studies of overcharges have used data from public tenders in a variety of sectors, such as sewer construction; federal-government procurement of frozen fish; state road-building contracts; real estate auctions; and school milk procurement. Each of these studies found positive overcharges during periods of overt collusion. A second strand in the literature concerns empirical studies of bid rigging inspired by developments in auction theory. Most such empirical testing of auctions consists of bidding patterns in ostensibly competitive auctions, and most authors study single-product auctions over time. A third strand of the cartel literature is the statistical analysis of auctions and bid rigging intended to test game-theoretic notions.

Section IV describes the data sets used in this paper.

Statistical analyses of data on large samples of bid rigging episodes over time are exceedingly rare. A first data set comprises more than 2,000 estimated overcharges from all types of cartels over centuries(!) – the earliest overcharge estimate included in the present study is of a 1700-1702 bid-rigging episode of coal delivered by ships to London.  A second data set focuses on international, typically larger contemporary cartels and contains about 1,400 cartels detected from 1990 to 2017. This second data set includes all overcharge estimates contained in the first data set, while assembling many more details about the cartelised market and the collusive conduct.

Bid rigging comprises a fairly large share of the 1,628 cartels in the sample – at least 21.2%, and this is likely an underestimate because earlier sources were not explicit about the presence or degree of bid-rigging conduct. The remaining 66% of cartelised markets is principally comprised of “classic” price fixing. The number and proportion of episodes involving bid rigging has increased markedly over time, and almost all bid-rigging overcharges appear for practices that ended after the late 1950s. Before 1946, bid-rigging episodes accounted for only 4.7% of all reported overcharges; during 1946-1989, this rose to 42%; but after 1989 it fell back to 24%. These data seem to indicate a nine-fold increase in the proportion of bid-rigging schemes after World War II compared to 1770-1945. However, this likely reflects either the availability of data, changes in the composition of cartelised industries or the changing preferences of economic researchers, rather than objective market conditions.

A subsection of section IV describes the results of the study.

The most important finding is that median overcharges from grouped data are higher for classic price fixing than they are for bid rigging. On average, cartels engaged in “classic” price-fixing conduct generated six percentage points (32%) higher median episodic overcharges than those engaged in bid rigging conduct. Compared to other forms of collusion, median bid rigging overcharges were generally 24% lower than classical price fixing; but mean episodic bid rigging overcharges are 51% lower than classical price fixing.

There are a number of potential explanations for this. Studies of many bidding rings suggest that they were ineffective in controlling market prices. When only effective cartel episodes are examined (i.e. those with positive overcharges), classic price-fixing cartels show a remarkable 88% higher median overcharge than bid-rigging episodes. Overcharges also vary systematically with the location of the cartels. There are significant differences in median overcharges among cartels that operated in various major regions of the world. Single-nation cartels in Western Europe display distinctly lower median overcharges than those that operated across multiple nations in Western Europe.

The authors also pursued a number of additional analyses of the data. They divided bidding rings into two conduct categories: with and without third-party assistance. Despite measurement problems, rings endure twice as long with third-party help than without. Another interesting difference is in the fines imposed. The median severity of penalties imposed for bid rigging is 128% higher than for classic cartels; but when the cartels have assistance from trade associations, median bid-rigging penalties are six times more severe than price-fixing cartels.

Finally, the authors also conducted regressions using a variety of potentially explanatory variables related to market structure, geography, and industry characteristics. Consistent with expectations, concentration has significant effects on the ability of bid rigging prices. Rings achieve higher overcharges when they operate with members that have relatively large market shares or, for a given number of participants, occupy highly concentrated industries. On the other hand, the nature of collusive conduct has an impact on penalties but not on the impact of that conduct – government fines are much higher when rings collude against public institution, even though there is no evidence that price effects are larger when governments are victims rather than private buyers.

Lastly, two temporal factors tend to be highly significant explanatory variables. The price effects of bidding rings are inversely associated with the duration of collusion (e.g. a bidding ring enduring twice as long as the average of 72 months is predicted to generate a 3.6% lower overcharge over its lifetime than a ring of average longevity). On the other hand, the price effects of bid rigging are positively related to macroeconomic downturns during the collusive period (e.g. cartels operating during macroeconomic downturns are able to achieve 19% to 22% higher overcharges than cartels operating during boom cycles).

Section VI discusses the policy implications of the paper’s findings.

There are two reigning theories on the optimal approach to suppressing the injurious effects of overt collusion. One approach focuses on deterrence, and advocates the imposition of a set of penalties so severe that would-be-cartelists are discouraged entirely from forming new cartels. A newer school of thought focuses on how leniency programs, antitrust screening techniques, and other enforcement improvements have raised markedly the rate of detection of clandestine cartels. Its proponents say that monetary penalties need not rise dramatically in order to dissuade or destabilize existing cartels. This “Dissuasion School” is primarily interested in reducing cartel harms by shortening cartel duration, rather than lowering the overcharge rates of existing effective cartels. The authors note that the empirical results on duration do not support the Dissuasion School, since they find that overcharges and duration are inversely related.

Regarding the use of bid rigging as an aggravating factor, very few formal fining guidelines mention bid rigging per se as an aggravating factor but, in practice, most jurisdictions apply more severe fines to rings than they do to classic cartels. The empirical results in this paper provide little support for this practice. The overcharge for other cartels is higher than for bid rigging, and collusion is not enhanced when government tenders were the targets of collusion. The analysis in tis paper suggests that antitrust sanctions guidelines should not necessarily treat bid rigging more harshly than other forms of collusion. Rather, the problem seems to lie with sub-optimal fines or low detection rates for all cartels and, in many jurisdictions, with a legal system that is underdeveloped or hostile for private damages actions.

This paper’s statistical findings suggest that the economic injuries from contemporary bidding rings can be lowered in a number of ways. First, enforcement resources ought to be deployed in an anti-cyclical fashion: when recessions occur, antitrust authorities should shift resources away from merger and monopoly investigations into cartel investigations, and concomitantly increase the sizes of their cartel units. Second, antitrust authorities should conduct analyses of the structure of purchasing industries to determine whether they are prone to bid rigging. Third, severe penalties should be directed equally to bidding rings and other cartels. Fourth, setting up well-designed electronic auctions in industries prone to collusion, improving collusion reporting mechanisms, and adopting policies that encourage entry into concentrated industries can have better pay offs. Fifth, it appears that a criminal regime with relatively high fines, an active private damages/class-action legal system, and heavy incarceration for cartel managers is conducive to lower overcharges and marginally better deterrence.


This paper provides a boon of information on bid rigging, when it occurs, how it develops and how it is sanctioned. Even if I do not fully understand how a number of the policy recommendations flow from the empirical data, I think this paper should be of interest to anyone interested in cartel enforcement, public procurement, bid rigging, and deterrence theory more widely.

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