New Research on the Effectiveness of Bidding Rings: Implications for Competition Policies

By John M. Connor & Dan P. Werner – 

Empirical examinations into the determinants of cartel overcharges are limited in the economic literature. We review the economic literature on auction theory and summarize the empirical research on the determinants of cartel overcharges. Our own analysis finds that the price effects of bidding rings, controlling for industry fixed effects, are affected by buyer market concentration, seller industry concentration, and two temporal features (episodic duration and recessions during collusion). Our findings suggest that the overcharge rates of contemporary bidding rings can be more efficiently policed in four ways: (1) deploy enforcement resources in an anti-cyclical fashion, (2) insist on studying the structure of the purchasing industries, (3) bidding rings exploiting private buyers need proportional resources to those exploiting public (government) buyers, and (4) opening up bidding to larger numbers of better-informed purchasers.

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