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

Kei Kawai; Jun Nakabayashi; Juan Ortner; Sylvain Chassang

doi:10.1093/restud/rdac013

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

Kei Kawai, Jun Nakabayashi, Juan Ortner, Sylvain Chassang

Princeton University

Research output: Contribution to journal › Article › peer-review

Abstract

Cartels participating in procurement auctions frequently use bid rotation or prioritize incumbents to allocate contracts. However, establishing a link between observed allocation patterns and firm conduct has been difficult: there are cost-based competitive explanations for such patterns. We show that by focusing on 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 non-competitive environments. We apply our tests to two datasets: the sample of Ohio milk auctions studied in Porter and Zona (1999, "Ohio School Milk Markets: An Analysis of Bidding", RAND Journal of Economics, 30, 263-288), and a sample of municipal procurement auctions from Japan.

Original language	American English
Pages (from-to)	376-403
Number of pages	28
Journal	Review of Economic Studies
Volume	90
Issue number	1
DOIs	https://doi.org/10.1093/restud/rdac013
State	Published - Jan 2023

ASJC Scopus subject areas

Economics and Econometrics

Keywords

Anti-trust
Backlog
Collusion
Incumbency
Procurement
Regression discontinuity

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10.1093/restud/rdac013

Cite this

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title = "Using Bid Rotation and Incumbency to Detect Collusion: A Regression Discontinuity Approach",

abstract = "Cartels participating in procurement auctions frequently use bid rotation or prioritize incumbents to allocate contracts. However, establishing a link between observed allocation patterns and firm conduct has been difficult: there are cost-based competitive explanations for such patterns. We show that by focusing on 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 non-competitive environments. We apply our tests to two datasets: the sample of Ohio milk auctions studied in Porter and Zona (1999, {"}Ohio School Milk Markets: An Analysis of Bidding{"}, RAND Journal of Economics, 30, 263-288), and a sample of municipal procurement auctions from Japan.",

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T1 - Using Bid Rotation and Incumbency to Detect Collusion

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AU - Kawai, Kei

AU - Nakabayashi, Jun

AU - Ortner, Juan

AU - Chassang, Sylvain

PY - 2023/1

Y1 - 2023/1

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AB - Cartels participating in procurement auctions frequently use bid rotation or prioritize incumbents to allocate contracts. However, establishing a link between observed allocation patterns and firm conduct has been difficult: there are cost-based competitive explanations for such patterns. We show that by focusing on 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 non-competitive environments. We apply our tests to two datasets: the sample of Ohio milk auctions studied in Porter and Zona (1999, "Ohio School Milk Markets: An Analysis of Bidding", RAND Journal of Economics, 30, 263-288), and a sample of municipal procurement auctions from Japan.

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KW - Procurement

KW - Regression discontinuity

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

Abstract

ASJC Scopus subject areas

Keywords

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