Screening for Bid Rigging—does It Work?

Abstract

This paper proposes a method to detect bid-rigging by applying mutually reinforcing screens to a road construction procurement data set from Switzerland in which no prior information about collusion was available. The screening method is particularly suited to deal with the problem of partial collusion, i.e. collusion which does not involve all firms and/or all contracts in a specific data set, implying that many of the classical markers discussed in the corresponding literature will fail to identify bid-rigging. In addition to presenting a new screen for collusion, it is shown how benchmarks and the combination of different screens may be used to identify subsets of suspicious contracts and firms in a data set. The discussed screening method succeeds in isolating a group of "suspicious" firms exhibiting the characteristics of a local bid-rigging cartel operating with cover bids and amore or less pronounced-bid rotation scheme. Based on these findings the Swiss Competition Commission (ComCo) decided to open an investigation.

Data Driven Regulation: Theory and Application to Missing Bids

“…There is a missing mass of close losing bids. These missing bids are related to bidding patterns of collusive firms in Hungary (Tóth et al, 2014) and Switzerland (Imhof et al, 2016). We establish that these missing bids indicate non-competitive behavior under a general class of asymmetric information models, and under the presence of arbitrary unobserved heterogeneity.…”

“…Imhof et al (2016) document a similar bidding pattern in procurement auctions in Switzerland: bidding patterns by several cartels uncovered by the Swiss competition authority presented large differences between the winning bid and the second lowest bid in auctions. See alsoTóth et al (2014).…”

A network approach to cartel detection in public auction markets

“…For example Conley and Decarolis [16] use an agglomerative clustering method to group firms based on their bidding behavior. In recent work on cartel screening, Imhof et al have used patterns of bidding interactions between firms to study cartels [30], though do not consider interactions between cartel and non-cartel firms. In general data on bids in public procurement are not made public, presenting a major obstacle to research on bid-rigging.…”

Review of collusion and bid rigging detection methods in the construction industry

“…A study carried out by Imhof et al is an example of such an approach. They revealed the details of a procedure, which was performed during the tenders for construction contracts ordered by the Swiss cantonal authorities in 2004-2010 [27]. A five-step procedure was applied.…”