Thursday, July 26, 2018
Claudia Cerrone, Max Planck Institute for Research on Collective Goods, Yoan Hermstrüwer, Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Bonn - Department of Law, and Pedro Brito Robalo, Max Planck Institute, Bonn examine Debarment and Collusion in Procurement Auctions.
ABSTRACT: This paper explores the impact of debarment as a deterrent of collusion in first-price procurement auctions. We develop a procurement auction model where bidders can form bidding rings, and derive the bidding and collusive behavior under no sanction, debarment and fines. The model's predictions are tested through a lab experiment. We find that debarment and fines both reduce collusion and bids. The deterrent effect of debarment increases in its length. However, the debarment of colluding bidders reduces effciency and increases the bids of non-debarred bidders. The latter suggests that the market size reduction resulting from debarment may trigger tacit collusion.