Cartels Facing Competition in Public Procurement: An Empirical Analysis

Numéro: 2011-3

Abstract : We analyse bidder collusion in public procurement. Our focus is on less than all-inclusive cartels. Using public information on convicted bid-rigging schemes taken from the decisions of the French Competition Authority, we have constructed an original database on 33 different cartels operating in 114 public work tenders.
Our empirical work tackles the question of external cartel stability. Our goal is to investigate the impact of outside bidders on cartels by testing a proposition derived from the auction theory literature. We show that the number of outside firms is a significant determinant of the low cartel bid and does not significantly impact the cartels’ probabilities of being awarded contracts. We believe that these results provide further evidence of the existence of cost asymmetries between cartels and outside firms. We conclude by arguing that policies which aim at stimulating the entry of small businesses in the market may have a positive eff ect on social welfare especially when a collusive scheme is suspected.